TaxProf Blog

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

Friday, August 25, 2017

Weekly SSRN Tax Article Review And Roundup

This week, David Gamage (Indiana) reviews a new draft article by Zachary Liscow (Yale), Is Efficiency Biased?.

Gamage (2017)Anyone interested in how the methodology of law and economics accounts for distributive justice should stop whatever else they might be doing so that they can immediately read Zach Liscow’s new draft article. Indeed, I wish that this article had been available when I started my legal academic career, as Liscow’s article clarifies several puzzles that had been confounding me for over a decade.

The essence of Liscow’s critique is that efficiency-oriented analysis in law and economics relies on allocating legal entitlements based on willingness to pay. However, wealthier individuals will often have a greater willingness to pay for many legal entitlements as compared to poorer individuals—as a direct result of the fact that the wealthier individuals have more money.  

This insight is not new. Liscow’s contribution is in carefully working through the implications of this insight. He concludes that, “efficient polices without distributional offsets are systematically regressive in the distribution of entitlements.[] If there is no wealth transfer that goes along with the adoption of efficient policies, government policies will tend to systematically advantage the well-off.” (p. 37)

This conclusion primarily relates to efficiency-oriented analysis in regard to non-cash legal entitlements. Whether this bias also exists with respect to efficiency-oriented analysis of cash-based entitlements depends on the criteria used for evaluating bias and other complications. Nevertheless, tax scholars should understand that many key issues in tax design involve the allocation of non-cash legal entitlements.

Liscow points this out with the example of the home mortgage interest deduction. In his words, “The mortgage interest deduction is best-considered a non-tax policy, not a tax policy, since it is a payment that, although cash, depends upon how much one spends on a mortgage and is not designed to compensate for the distributional effects of a policy change.” (p. 15).

Consider also the tax rules governing fringe benefits. Poorer individuals likely have far lower willingness to pay for many fringe benefits than do richer individuals. Thus, if legal regimes force poorer individuals to fund fringe benefits out of their own pockets, this would likely harm the welfare of these poorer individuals (especially if the criteria used is based on the willingness to pay of the less poor). Yet we should expect a different analytic result when the question involves funding fringe benefits out of the public fisc. In this scenario, the observation that wealthier individuals have greater willingness to pay for fringe benefits than poorer individuals should not, in and of itself, justify legal regimes that fund fringe benefits for the wealthier and not the poorer, at least without distributional offsets.

I have only scratched the surface here of explaining the insights that arise from Liscow’s excellent analysis, and so I again implore those interested in these questions to read Liscow’s article. I am confident that Liscow’s article will be considered a seminal contribution in how efficiency-oriented analysis in law and economics accounts for distributive justice. Any tax scholar who takes account of economic methodologies will need to consider Liscow’s insights.

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

Scholarship, Tax, Weekly SSRN Roundup | Permalink


Professors Liscow and Gamage are important new voices in the long-running discussion within legal scholarship on efficiency and equity. Here’s my own view of how one section of this cathedral looked before their impressive recent renovations: “Optimal Redistributional Instruments in Tax Policy and Law & Economics: Survey and Assessment,” (April 22, 2017),

Posted by: Chris William Sanchirico | Aug 29, 2017 9:05:54 AM