- 20 Feb 2019
- Research & Ideas
Rocket-tunity: Can Private Firms Turn a Profit in Space?
Private rocket companies are competing to be the first to send paying tourists into space, perhaps even this year. Matthew Weinzierl lays out the strategic roadmap to the stars. Open for comment; 0 Comments.
- 30 Jan 2019
- Working Paper Summaries
Understanding Different Approaches to Benefit-Based Taxation
Benefit-based taxation—where taxes align with benefits from state activities—enjoys popular support and an illustrious history, but scholars are confused over how it should work, and confusion breeds neglect. To clear up this confusion and demonstrate its appeal, we provide novel graphical explanations of the main approaches to it and show its general applicability.
- 08 Feb 2018
- Op-Ed
What’s Missing From the Debate About Trump’s Tax Plan
At the end of the day, tax policy is more about values than dollars. And it's still not too late to have a real discussion over the Trump tax plan, says Matthew Weinzierl. Open for comment; 0 Comments.
- 24 Oct 2017
- Research & Ideas
Tax Reform is on the Front Burner Again. Here’s Why You Should Care
As debate begins around the Republican tax reform proposal, Mihir Desai and Matt Weinzierl discuss the first significant tax legislation in 30 years. Open for comment; 0 Comments.
- 14 Oct 2016
- Working Paper Summaries
A Welfarist Role for Nonwelfarist Rules: An Example with Envy
The author proposes an argument for why policymakers should, as research has repeatedly shown most people do, consider multiple, often mutually contradictory principles when judging economic policy: we cannot fully understand a policy’s effects, so we use principles based on human experience to help avoid unforeseeable mistakes. This argument is a specific version of a more general point made over the centuries, but if accepted it would have broad implications for the modern approach to economic policy analysis. He provides an example of this argument in action, focusing on the controversial topic of the tax policy response to the existence of envy.
- 31 May 2016
- HBS Case
Who Owns Space?
Industry is looking to the stars for a new commercial frontier. NASA is looking to industry to help broaden the scope of space exploration. And Professor Matt Weinzierl is looking at what this interplay means for the future of the New Space sector. Open for comment; 0 Comments.
- 11 May 2016
- Cold Call Podcast
Who Owns Space?
Entrepreneurs like Elon Musk and Jeff Bezos are tapping into their vast personal wealth to make commercial space travel a reality. In the process, they're revitalizing a listless national space program. Professor Matthew Weinzierl discusses his new case on New Space, and how public-private partnerships are becoming the building blocks for the hottest new startup sector. Open for comment; 0 Comments.
- 18 Apr 2016
- Working Paper Summaries
Popular Acceptance of Morally Arbitrary Luck and Widespread Support for Classical Benefit-Based Taxation
This paper presents survey evidence that the normative views of most Americans appear to include ambivalence toward the egalitarianism that has been so influential in contemporary political philosophy and implicitly adopted by modern optimal tax theory. Insofar as this finding is valid, optimal tax theorists ought to consider capturing this ambivalence in their work, as well.
- 15 Apr 2015
- Research & Ideas
Why Americans Voted for an Income Tax
Matthew Weinzierl looks at the justifications for the United States income tax and whether it is an unfair burden or fair payment for services rendered. Open for comment; 0 Comments.
- 10 Dec 2014
- Research & Ideas
Minimum Wage Debate Is Really About Social Values
Debate over raising the minimum wage tends to focus on costs and benefits, but economist Matthew Weinzierl argues that what really is at stake are much deeper societal values. Open for comment; 0 Comments.
- 05 Dec 2014
- Working Paper Summaries
Seesaws and Social Security Benefits Indexing
The indexation of Social Security benefit payments has emerged in recent years as a flashpoint of debate in the United States. While the overall fiscal implications of benefits-indexing reform have been widely discussed, this paper's contribution is to explore both the positive and normative aspects of indexation's distributional consequences across the population of retirees. In particular, the author studies the direct effects that changes in benefits-indexing have on retirees who differ in two important ways: initial wealth at retirement and mortality rates after retirement. The author proposes a simple but flexible theoretical framework that converts benefits reform first into changes to retirees' consumption paths and then into a net effect on social welfare. He uses recently-produced data on the net worth, benefit levels, and mortality risks of Social Security beneficiaries by lifetime income decile to provide quantitative results. Finally, he introduces survey evidence on the priorities Americans have for Social Security, a first step in pinning down the normative implications of these effects of indexing reform. The results suggest that the value retirees place on protection against longevity risk is an important caveat to the widespread enthusiasm for a switch to a slower-growing price index such as the chained CPI-U. Key concepts include: This paper outlines a flexible and relatively simple formal structure for modeling tradeoffs in the direct effects of benefits-indexing reform on a population of diverse retiree households. A useful metaphor for thinking about the direct effects of indexation on a wide range of retirees is a playground seesaw, where two facts about retired households in the United States push down on opposite ends. Variation across retiree households means that any given reform to benefits-indexing generates effects with exactly opposite welfare implications. A large majority of retirees are likely to sit on the left end of the seesaw, that is, favor a steeper path of benefits that effectively annuitizes more of a given retiree's total wealth. Closed for comment; 0 Comments.
- 27 Jun 2014
- Working Paper Summaries
Positive and Normative Judgments Implicit in US Tax Policy and the Costs of Unequal Growth and Recessions
What does United States tax policy reveal about Americans' values and beliefs, and about how those values and beliefs have changed over time? In this paper, the researchers use theory and data to back out the implicit priorities and judgments in US tax policy over the last several decades. They find a dramatic shift in the mid-1980s that persisted, and even continued, over the next 25 years and that cannot be reconciled with conventional assumptions about these values and beliefs. They explore evidence on a number of possible explanations for this shift, including a link between economic and political inequality. They also attempt to use their results to estimate the welfare costs of two key phenomena—rising inequality and recessions—and find that these estimates are highly sensitive to the explanation one adopts for the evolution of US policy. Overall, the researchers argue, uncovering the judgments implicit in policy provides a promising path toward both a better understanding of policy priorities and more objective comparisons for policy evaluation. Key concepts include: This paper uncovers the values and beliefs implicit in U.S. tax policy over the last three decades. Conventional assumptions about these values and beliefs are not consistent with the path of policy. Closed for comment; 0 Comments.
- 01 May 2014
- Working Paper Summaries
Revisiting the Classical View of Benefit-Based Taxation
President Barack Obama explains his support for progressive taxes as based on the belief that "those who've benefited most from our way of life can afford to give back a little bit more." Called the classical version of benefit-based taxation, this reasoning has been used by policymakers and scholars for centuries, but it has been assigned at best a subsidiary role in modern research on optimal tax policy. In this paper, the author revisits that view and shows how it might be incorporated into modern theory. It turns out that this classical version of benefit-based taxation fits seamlessly into the modern (Mirrleesian) approach, with results for optimal policy that depend on potentially estimable statistics. Optimal policy according to this view can take a wide variety of forms, including those that match existing policy well. More generally, to the extent that a mixture of this classical benefit-based reasoning and the more conventional welfarist (e.g., utilitarian) reasoning is a good approximation of prevailing objectives for tax policy, the model may offer a useful approach to positive optimal tax theory. Key concepts include: The long-standing role for classical benefit-based logic in public reasoning over taxes stands in stark contrast to the momentum away from it in modern theory. This paper explores whether we might reconcile this disconnect by incorporating the classical view of benefit-based taxation into the modern framework of optimal tax theory, thereby resuscitating it as part of how we understand policy design. Closed for comment; 0 Comments.
- 15 Jan 2013
- Working Paper Summaries
The Promise of Positive Optimal Taxation: A Generalized Theory Calibrated to Survey Evidence on Normative Preferences Explains Puzzling Features of Policy
The traditional goal of optimal tax research among economists has been to choose the "right" normative objective for policy and characterize the tax system that best attains it. However, public opinion on the appropriate normative criterion has been seen as beside the point. An alternative goal, pursued in this paper, is to characterize the tax system that best attains the normative objective that prevails in reality. Weinzierl makes three contributions. First, he presents novel survey evidence on the empirical normative preferences of individuals in the United States. The evidence shows that few respondents prefer the conventional Utilitarian policy or the Rawlsian alternative, and a plurality (nearly half) prefer policies that reflect a mixed objective that gives weight to both Utilitarianism and Equal Sacrifice. Second, he generalizes the conventional optimal tax model to accommodate evidence of a mixed objective for taxation. Third, he shows that the empirically-preferred calibration of the generalized theory has remarkable explanatory power as a positive optimal tax model. Taken together, the survey results, theoretical analysis, and calibrated simulations of this paper demonstrate the potential of a positive optimal taxation research agenda. They show that we can rigorously capture empirical evidence on what tax policies individuals find acceptable and, as one might hope, use the resulting model to better understand how actual tax policy is and (arguably) ought to be designed. Key concepts include: This paper aims toward improving optimal tax policy that would include the diverse criteria for taxes that most people find compelling. Optimal tax policy, when modified as in this paper, matches remarkably well with several prominent characteristics of existing policy that are puzzling from the perspective of conventional theory but widely endorsed in reality. Important questions for future research arise from this paper. For example: whose preferences matter for policymaking, how are individual preferences aggregated, and what are the admissible normative criteria. Moral authority in reality rests not with tax theorists but with voters and policymakers. This paper heeds the advice of Samuelson (1980) that "Basic questions concerning right and wrong goals to be pursued cannot be settled by mere science as such.... The citizenry must ultimately decide such issues." Closed for comment; 0 Comments.
- 24 Sep 2012
- Research & Ideas
Why Do We Tax?
As the US presidential election bears down for November, it's prime time to ask how the income tax system could be improved. Assistant Professor Matthew C. Weinzierl suggests how. Closed for comment; 0 Comments.
- 24 Aug 2012
- Working Paper Summaries
Equalizing Outcomes vs. Equalizing Opportunities: Optimal Taxation when Children’s Abilities Depend on Parents’ Resources
Economists have long recognized that parents' resources and investment in their children may be key determinants of their children's outcomes. Recent evidence indicates that increasing the disposable incomes of poor parents raises the performance of their children on tests of cognitive ability. That finding suggests that current tax policy may affect the future distribution of underlying income-earning abilities in the taxpayer population. However, the dominant model of optimal taxation has been unable to take this effect into account. This study explores the implications for optimal policy of taking a more nuanced approach. Using a calibrated model to simulate optimal policy, the authors find that the optimal policy redistributes substantially more toward low-ability parents and earlier generations than does status quo policy. This paper may be the first to model this complexity and derive policy implications. Key concepts include: When poor parents have more disposable income, their children's performance improves and they have greater opportunity to succeed. An optimal tax policy will take advantage of this relationship to shape the distribution of ability over time. The gain outlined in the paper is equivalent to a permanent increase in disposable income for all generations of more than one percent. Choices by parents affect the abilities taken as given by their children, and these abilities in turn affect the set of choices available to children. This interaction is a central factor in optimal tax policy: It is the crux of the tradeoff between redistributing to the poor later and investing in their skills now. The interaction between natural ability and human capital investments is also relevant for issues such as optimal life-cycle tax and training policies and social insurance program design. Closed for comment; 0 Comments.
- 17 Jul 2012
- Working Paper Summaries
Why Do We Redistribute So Much but Tag So Little? The Principle of Equal Sacrifice and Optimal Taxation
Why don't we tax personal characteristics such as height, race, and gender? The conventional optimal tax model suggests that we should, while no societies do. This paper proposes an explanation: conventional optimal tax theory has yet to capture the diversity of normative principles with which society evaluates taxes. Incorporating a role for the principle of equal sacrifice in how taxes are designed, a principle held by many leading thinkers to be the natural criterion of justice in taxation, substantially improves the match between the theory of optimal taxes and the reality of tax policy. This alternative reconciles three features of real-world policy that seemed incompatible in the standard model: limited taxation of personal characteristics not directly linked to ability, moderate marginal tax rates at high incomes, and substantial redistribution to the poor. Key concepts include: Incorporating the principle of equal sacrifice, a principle held by many leading thinkers to be the natural criterion of justice in taxation, substantially improves the match between the theory of optimal taxes and the reality of tax policy. This alternative reconciles three features of real-world policy that seemed incompatible in the standard model: limited tagging of personal characteristics not directly linked to ability, moderate marginal tax rates at high incomes, and substantial redistribution to the poor. The tradeoff between equality and efficiency is not the only one that matters for tax policy. Instead, society also faces a tradeoff between a diversity of normative frameworks, each of which carries some weight in the evaluation of policy. Closed for comment; 0 Comments.
- 13 Jul 2012
- Working Paper Summaries
De Gustibus non est Taxandum: Theory and Evidence on Preference Heterogeneity and Redistribution
Individuals differ in the value they place on consumption relative to leisure. These preference differences help explain why some earn more than others, and they are a central part of popular and scholarly debates over taxation. In this paper, Benjamin Lockwood and Matthew Weinzierl show that variation in these preferences may also help explain why the extent of redistribution varies across countries and US states, and why (at least in the case of the United States) redistribution is weaker than conventional theory would suggest. More generally, Lockwood and Weinzierl argue that neglecting the role of preferences substantially impairs our understanding of both optimal and existing tax policy. Overall, findings suggest that this paper's generalized normative optimal tax model may be a better guide to policy advice than the conventional one. Key concepts include: A proper understanding of the role of preference differences improves our ability not only to design taxation but also to understand existing tax policies. Surprisingly, preference differences are absent from conventional optimal tax theory. That theory, instead, attributes all variation in earnings to differences in income-earning ability. More variance in reported preferences is significantly associated with less redistribution across both countries and US states, conditional on observed variation in incomes and the correlation of income with preferences. Closed for comment; 0 Comments.
- 10 Aug 2011
- Research & Ideas
HBS Faculty Views on Debt Crisis
In the midst of the US debt crisis, Harvard Business School faculty offer their views on what went wrong and what needs to be done to right the US ship of state. Open for comment; 0 Comments.
Designing, Not Checking, for Policy Robustness: An Example with Optimal Taxation
The approach used by most economists to check academic research results is flawed for policymaking and evaluation. The authors propose an alternative method for designing economic policy analyses that might be applied to a wide range of economic policies.