Thursday, February 20, 2020
Zach Liscow (Yale) presents Equality, Taxation, and Law and Economics in the 21st Century at Indiana today as part of its Tax Policy Colloquium Series hosted by Leandra Lederman:
Inequality is one of the defining issues of our time. Orthodoxy among public policy scholars, prominently including those in law and economics, has long been that the most effective means of addressing inequality is through taxes and transfers—in other words, cash. Given the choice between cash and in-kind legal changes, goods, or services, cash seems better because it lets the recipient choose what to get and the payer choose what to give up. So the law should ignore equity and let its distributive alibi, taxes, address those concerns.
Unfortunately, our standard approach is deeply at odds with social reality, so it yields bad policy prescriptions that fail to address or even magnify inequality. Ordinary people don’t think about policy like economists do, fungibly trading off redistribution through one means or another. Instead, people view policies through their own internal norms. For tax policy, the poor are deemed to not deserve free cash and the rich are deemed to deserve a decent share of their income, thwarting sufficient redistribution through taxation. A democracy where Congress is attentive to such views will need to look elsewhere to achieve distributive justice.
The Article turns standard economics prescriptions on their heads.
Rather than never redistributing, as standard law and economics prescribes, nontax policy typically should redistribute: decentralized political actors should typically each tilt policies toward the poor. The Article takes citizen psychology seriously and develops policy prescriptions based on it to reveal how to redistribute, given the tradeoffs presented by standard efficiency concerns. The Article points the way forward for policymakers who care about addressing inequality, describing implications across federal regulatory cost-benefit analysis, social welfare policy, traditional legal rules, and elsewhere.