Principle Of Equal Sacrifice Research Articles

Inequality aversion in post-communist countries in the years of the crisis

This article provides estimates for the parameters of inequality aversion for 10 post-communist economies of central and eastern Europe in the years of the crisis. To this aim, we employ the information on the level of tax progressivity available in the European Union Survey on Income and Living Conditions cross-sectional microdata, under the assumption that the principle of equal sacrifice drives the choices of governments on marginal tax rates. Results reveal a remarkable variety of preferences for redistribution across the countries during the time period considered (2008–2012), with some of them converging towards the generally higher inequality aversion levels of the western European Union, perhaps as a result of policy responses to the crisis.

A fair tax (system) or an ethical taxpayer?

An interpretation of fairness based on the equal sacrifice principle is not clear; three taxation rules can be derived from it. Instead of searching for a fair tax system, ethical behavior of the taxpayer should be expected and set as a target. Ethical taxation can be encouraged and the propensity to pay taxes could be reinforced by abolishing the secrecy of individual and family tax returns, setting restrictions on cash operations which are associated with corruption, and gradually eliminating tax havens and offshore areas.

The promise of positive optimal taxation: normative diversity and a role for equal sacrifice

A prominent assumption in modern optimal tax research is that the objective of taxation is Utilitarian. I present new survey evidence that most people reject this assumption's implications for several prominent features of tax policy, instead preferring tax policies based at least in part on a classic alternative objective: the principle of Equal Sacrifice. I generalize the standard model to accommodate this preference for a mixed objective, proposing a method by which to make disparate criteria commensurable while respecting Pareto efficiency. Then, I show that optimal policy in this generalized model, calibrated to the survey evidence and U.S. microdata, is capable of quantitatively matching several features of existing tax policy that are incompatible in the conventional model but widely endorsed in the survey and reality, including the coexistence of substantial redistribution and limited tagging. Together, these findings demonstrate the potential of a positive theory of optimal taxation.

On the efficiency of equal sacrifice income tax schedules

In an economy which primitives are exactly those in Mirrlees (1971), we investigate the efficiency of tax schedules derived under the equal sacrifice principle. For a given exogenous government consumption level we assess whether there is an alternative tax schedule that raises more revenue while delivering less utility to no one. For our preferred parametrizations, we find that inefficiency only arises at the top of the income distribution for marginal tax rates well above the ones we currently observe in most countries. We also recover the implicit marginal social weights associated with the equal sacrifice schedule and find them not to be monotonic in types for the environments we study.

The Promise of Positive Optimal Taxation

A prominent assumption in modern optimal tax research is that the objective of taxation is Utilitarian. I present new survey evidence that most people reject this assumptionʼs implications for several prominent features of tax policy, instead preferring tax policies based at least in part on a classic alternative objective: the principle of Equal Sacrifice. I generalize the standard model to accommodate this preference for a mixed objective, proposing a method by which to make disparate criteria commensurable while respecting Pareto efficiency. Then, I show that optimal policy in this generalized model, calibrated to the survey evidence and U.S. microdata, is capable of quantitatively matching several features of existing tax policy that are incompatible in the conventional model but widely endorsed in the survey and reality, including the coexistence of substantial redistribution and limited tagging. Together, these findings demonstrate the potential of a positive theory of optimal taxation.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Why do we Redistribute so Much but Tag so Little? The Principle of Equal Sacrifi ce and Optimal Taxation

The workhorse model of optimal taxation strongly recommends tagging, but its use in policy is limited. I argue that this puzzle is a symptom of a more fundamental problem. Conventional theory neglects the diverse normative criteria with which, as extensive evidence has shown, most people evaluate policy. In particular, if the classic principle of Equal Sacrifice augments the standard Utilitarian criterion, optimal tagging is limited. Calibrated simulations of optimal policy with normative diversity of this type simultaneously match three features of U.S. policy: substantial income redistribution; rejection of gender, race, and height tags; and acceptance of a blindness tag. Additional implications increase the appeal of this revision to conventional theory.

Justifying the Lindahl solution as an outcome of fair cooperation

The motivation for the Lindahl equilibrium is mostly a rather artificial price mechanism. Even though the analogy to a competitive market was emphasised by Lindahl himself, his approach does not directly explain the normative ideas behind his concept. In the present paper we therefore show how the Lindahl equilibrium can be deduced from some simple equity axioms. These normative assumptions are the benefit principle on the one hand and the equal sacrifice principle (or, equivalently, a non-envy condition) as a postulate for distributional equity on the other. Fairness among agents with different preferences and incomes is taken into account by considering their marginal willingness to pay as shadow prices. In this way, the reason why the Lindahl solution can be perceived as an outcome of fair cooperation might become more understandable.

Justifying the Lindahl Solution as an Outcome of Fair Cooperation

The Lindahl equilibrium is mostly motivated by a rather artificial price mechanism. Even though the analogy to a competitive market has been emphasised by Lindahl himself his approach does not directly explain the normative ideas, which are behind this concept. In the present paper we therefore show how the Lindahl equilibrium can be deduced from some simple equity axioms that in particular are related to the equal sacrifice principle and a nonenvy postulate as norms for distributional equity. Fairness among agents with different preferences is taken into account by considering their marginal willingnesses to pay as virtual prices. In this way it might also become more understandable why the Lindahl solution can be perceived as an outcome of fair cooperation.

Tax and the Philosopher's Stone

In the Myth of Ownership: Taxes and Justice (Oxford 2002), Liam Murphy and Thomas Nagel discuss the relationship between tax policy and contemporary political philosophy. Murphy and Nagel essentially argue for the priority of political philosophy over tax policy. For them, there is little room for tax policy per se; they argue that tax policy ought to serve the ends of a philosophical conception of justice. They maintain that questions of fairness are, in and of themselves, irrelevant to tax policy, which should be understood as a slave to philosophical conceptions of justice. While we embrace Murphy and Nagel's central claim that it makes little sense to engage arguments over tax policy without an antecedently held conception of distributive justice and that questions of tax policy must be consistent with that conception, we argue that some aspects of their argument are ultimately too strong. Traditional metrics of tax policy analysis such as the benefit principle and the equal sacrifice principle are neither completely irrelevant to tax policy, nor inconsistent with all versions of political liberalism. We distinguish between "pre-institutional" and "post-institutional" conceptions of liberalism, and between "maximizing" and "non-maximizing" conceptions of distributive justice. We argue that while Murphy and Nagel's argument is powerful in the context of maximizing, post-institutional conceptions, it is less persuasive in the context of pre-institutional versions of liberalism and, perhaps, in the context of non-maximizing versions of post-institutional liberalism. Finally, we conclude by arguing that the central claims of Murphy and Nagel's argument are, to some extent, in tension with what they take to be their view's practical applications.

Piecewise linear tax functions, progressivity, and the principle of equal sacrifice

In this paper we discuss and criticise the conclusion asserted by Mitra and Ok (Mitra, T., Ok, E., 1996, Personal income taxation and the principle of equal sacrifice revisited, International Economic Review 37, 925–948), that when we restrict our attention to piecewise linear tax functions the principle of equal sacrifice implies progressivity.

Bentham and J. S. Mill on Tax Reform

Bentham and J. S. Mill can be regarded as utilitarian tax-reformers distinguished from political economists who were simply averse to taxation. The purpose of this paper is to elucidate the difference between Bentham's and Mill's tax reform programmes. Bentham proposed the law of escheat and a tax on bankers' and stock dealers' profits, subject to the principle of least sacrifice of enjoyment. He also planned to correct the inequality of the land tax by extending it into a general income tax. Mill proposed an income tax on the basis of the principle of equal sacrifice of enjoyment. He also proposed a progressive inheritance tax and a variable land tax, regarding unearned income as a fit subject for a special tax. Consequently, Mill used Bentham's ideas and tools to take a step towards a more egalitarian programme.

Lorenz Domination, Utilitarian Deprivation Rule and Equal Sacrifice Principle

Of two income distributions x and y, over a given population size, we say that the former dominates the latter by the utilitarian deprivation rule if, for any person, the aggregate utility shortfall from richer persons under x is at least as large as that under y. In this paper we show that if the relative risk aversion associated with the utility function does not exceed unity, then any Lorenz‐consistent income tax function will make the post‐tax distribution no more deprived than the pre‐tax distribution according to the utilitarian deprivation rule. The converse of this proposition holds if the risk‐aversion measure is not less than one. It then follows that if the utility function is of logarithmic type then consistency between the two criteria holds. Finally, we relate our results to the equal sacrifice principle.

On the Equitability of Progressive Taxation

We propose the principle of equal sacrifice to determine the class of “vertically inequitable” progressive taxes. A necessary condition for an income tax function to be equal sacrifice is formulated, and hence, a subclass of progressive taxes which cannot inflict the same sacrifice upon all individuals relative toanystrictly increasing and concave utility function is determined. Conversely, it is shown in a general framework that any convex (thus progressive) tax function satisfies the principle of equal sacrifice. Our findings point to the fact that equal sacrifice under progressive income taxation depends heavily upon the degree of marginal rate (as opposed to average rate) progressivity.Journal of Economic LiteratureClassification Numbers: D63, H20.

Personal Income Taxation and the Principle of Equal Sacrifice Revisited

This paper shows that, in the domain of piecewise linear statutory income tax functions, the principle of equal sacrifice implies tax progressivity. The progressivity implication of the doctrine is, in fact, stronger: the equal sacrifice principle, in essence, characterizes marginal rate progressivity, a result which is in sharp contrast with the standard literature on public finance. The authors also apply their findings to the personal statutory income taxation practices of the OECD countries and observe that the United States and Turkey were the only ones violating the principle of equal sacrifice in the time period 1988 to 1991. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

On the principle of equal sacrifice in income taxation

In an influential article by Young ( Journal of Economic Theory, 1988, 44, 321–335), it is shown that the traditional equal sacrifice principles in taxation can be justified from a non-utilitarian perspective by proving that equal sacrifice is, in fact, a consequence of more primitive concepts of distributive justice. This result is obtained in a distribution theoretic setting where total revenue to be raised is fixed. The present paper studies the same question in a setting where the basic problem is to determine a tax function without any reference to the total tax revenue (a setting which is familiar from the theory of progressive taxation) and shows that (i) there exists a utility function (which is continuous and strictly increasing) relative to which all agents sacrifice equally if and only if the tax function is incentive preserving; and (ii) any convex (hence progressive) and incentive preserving tax function equalizes sacrifice relative to a utility function which is continuous, strictly increasing and concave.

A controversial proposal concerning inequality measurement

An axiom system on a policy maker's preferences is proposed and shown to characterize the class of linear inequality measures. A measure for the policy maker's degree of “equality mindedness” is then developed. The essay concludes with an exploration of the interplay between the policy maker's preferences and the prevailing tax structure. The controversial aspect lies in an attempt to use the tax structure to retrieve the policy maker's preferences through the Principle of Equal Sacrifice.

Équité fiscale : une simple expérience

The paper analyses John Stuart MilTs equity principle of equal sacrifice. The utility-of-income functions of a sample of fictitious taxpayers are evaluated. These functions are confronted with existing income tax schedules. A general result is that sacrifice (absolute and proportional) is unequal for different tax brackets.

Progressive taxation and the equal sacrifice principle

A classical problem in public finance is: when does equal sacrifice imply progressive taxation? Suppose that a tax schedule imposes equal sacrifice on all taxpayers in loss of utility, and that this property is preserved under re-indexing of the schedule. Then the utility function must exhibit constant relative risk aversion, i.e. it must be logarithmic or a power function. If equal sacrifice relative to such a utility function holds for all taxable incomes, and if tax rates do not exceed 100 percent, then the degree of relative risk aversion must be at least unity, and the tax must be nonregressive.

Estimated Payroll Tax Incidence and Aggregate Demand for Labour in the United Kingdom

The payroll tax should be of interest to empirical researchers for a number of reasons. It is a large and growing source of government revenues in many countries such as United States, Canada and the United Kingdom. It is also a major source of funds out of which important social security benefits such as unemployment insurance and public pensions are paid. However, while relatively easy to collect and administer, the payroll tax may be distributionally regressive and contradict the equal sacrifice principle based on ability to pay. It is thus of some concern for reasons of equity and public policy to be able to evaluate the actual magnitude of these distributional effects. In addition, there is considerable current interest in alternative social security schemes (see for example Okner, 1975, and Munnell, 1977) arising from the present demographic trends, which, with present financial arrangements, are likely to result in future funding deficits, so that revisions will have to be undertaken. In particular, a number of studies have examined the liability structure and distributional incidence of the payroll tax (Peckman and Okner, 1974; Peckman, 1977; and Johnston and Wixon, 1978). In order to evaluate the distributional implications of the various options available, there should be a better understanding particularly of the distributional characteristics of the payroll tax. The specific problem this paper addresses is the distributional incidence of the payroll tax and whether the employer portion of the tax is entirely shifted backwards on to labour. That is, do employees bear the full burden of the employer portion of the payroll tax in the form of wage cuts or forgone earnings? The empirical literature in the area of payroll tax shifting is so far fairly limited and is characterized by markedly differing estimates of the incidence. Works by Deran (1966, 1967), Weitenburg (1969), Brittain (1972), Vroman (1974a), Leuthold (1975), and Hamermesh (1979, 1980) employed different data bases and empirical procedures, and obtained widely differing results. In particular, the work of Brittain (1972) has become the standard reference and the basis for a good deal of empirical analysis. The present paper puts forward an alternative approach to estimating payroll tax incidence on employees that substantially improves upon the approach of Brittain. Specifically, it involves estimating an aggregate demand curve for labour in the United Kingdom and analysing how the curve shifts in response to changes in the payroll tax. The result that, in a world of competitive markets, the full incidence of a universal payroll tax is shifted on to an inelastic supply of labour is a standard result ifl microeconomics (Musgrave and Musgrave, 1976, pp. 404-406). The