TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, May 26, 2017

Weekly SSRN Tax Article Review And Roundup

This week, Ari Glogower (Ohio State) reviews a new work by Chris William Sanchirico (Penn), Optimal Redistributional Instruments in Tax Policy and Law & Economics: Survey and Assessment, in The Oxford Handbook of Law & Economics, Vol. 1: Methodology and Concepts 321 (Francesco Parisi, ed., 2017)

Glogower (2016)In his new work, Chris Sanchirico surveys the current literature on the optimal redistributional instruments, which seeks identify the most efficient policy tool(s) for redistribution.

Sanchirico identifies three broad strands in the literature.  First, the tax substitution argument generally holds that redistribution is best accomplished through a tax on labor earnings, because redistribution through any other policy can be substituted for redistribution through the labor income tax, at a lower cost.  As Sanchirico has argued in prior work, however, the assumptions about labor income taxation underlying the tax substitution argument could similarly be used to justify optimal redistribution through other policies or instruments.

A second approach of “policy eclecticism,” developed Sanchirico’s prior work, considers the problem of optimal redistribution from an alternative direction.  This approach evaluates the conditions under which a policy should pursue redistribution at the margin, by focusing on the marginal cost of redistribution from a policy adjustment. Under this approach, redistribution may be warranted through multiple policies and instruments.  Finally, a third—and more pragmatic—literature considers redistribution in the light of government uncertainty as to the optimality of different policies.  Sanchirico argues that this uncertainty does not necessarily imply a labor-income tax, since uncertainties faced by other policies may apply to a labor-income tax as well.  Finally, the work concludes by identifying directions for future analysis, including accounting for factors such as political, cognitive and administrative constraints, and as argued by David Gamage (Indiana), the relative ease of avoidance and evasion under different instruments.

Sanchirico acknowledges that his take on optimal redistribution reflects his own views and research, and others may disagree with his conclusions.  (For example, see the response to Sanchirico’s work by Joseph Bankman (Stanford) and David Weisbach (Chicago)).  What then are policymakers and the public to make of these technical debates that lead to dramatically different conclusions on redistributive policy?  Looming in the background is the elephant in the tax policy room: the relative tax burdens on capital and labor income, and the consequences of this distinction for the definition of the tax base, and for wealth and income inequality.  Economists have increasingly questioned whether labor income taxes alone can—and should—shoulder the burden of reducing inequality.  For example, a recent empirical study by Thomas Piketty (Paris School of Economics), Emmanuel Saez (UC-Berkeley), and Gabriel Zucman (UC-Berkeley), found that, since 2000, income inequality has been increasingly attributable to capital income, not high salaries, and that the current income tax has only a minimal role in reducing inequality.  Meanwhile, theoretical works by Peter Diamond (MIT) and Emmanuel Saez, and by OECD economists, have argued for positive taxation of capital income on efficiency grounds, while questioning the traditional view that capital income taxes unduly burden investments and economic growth.

In sum, Sanchirico’s work provides important background and insights into the evolving, and crucial, debate over the design of a fair and efficient tax system.

 

Here’s the rest of this week’s SSRN Tax Roundup:

http://taxprof.typepad.com/taxprof_blog/2017/05/weekly-ssrn-tax-article-review-and-roundup-2.html

Scholarship, Tax, Weekly SSRN Roundup | Permalink

Comments

Hey, your article is quiet interesting. I have gained lots of knowledge from it.
Thanks!

Posted by: aliciawadey | May 27, 2017 1:22:43 AM