Date of this Version
Journal of Monetary Economics
Calculating the welfare implications of changes to economic policy or shocks requires economists to decide on a normative criterion. One approach is to elicit the relevant moral criteria from real-world policy choices, converting a normative decision into a positive inference, as in the recent surge of “inverse-optimum” research. We find that capitalizing on the potential of this approach is not as straightforward as we might hope. We perform the inverse-optimum inference on U.S. tax policy from 1979 through 2010 and argue that the results either undermine the normative relevance of the approach or challenge conventional assumptions upon which economists routinely rely when performing welfare evaluations.
© 2016. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
income taxation, optimal taxation, inverse optimum
Lockwood, B. B., & Weinzierl, M. (2016). Positive and Normative Judgments Implicit in U.S. Tax Policy, and the Costs of Unequal Growth and Recessions. Journal of Monetary Economics, 77 30-47. http://dx.doi.org/10.1016/j.jmoneco.2015.10.006
Date Posted: 27 November 2017
This document has been peer reviewed.