Business Economics and Public Policy Papers

Document Type

Journal Article

Date of this Version

2-2016

Publication Source

Journal of Monetary Economics

Volume

77

Start Page

30

Last Page

47

DOI

10.1016/j.jmoneco.2015.10.006

Abstract

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.

Copyright/Permission Statement

© 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/

Comments

At the time of publication, author Benjamin B. Lockwood was affiliated with the Harvard University. Currently (September 2017), he is a faculty member in the Business Economics and Public Policy Department of the Wharton School at the University of Pennsylvania.

Keywords

income taxation, optimal taxation, inverse optimum

Embargo Date

11-2-2017

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Date Posted: 27 November 2017

This document has been peer reviewed.