Should-Read: Greg Leiserson: U.S. Inequality and Recent T...

Should-Read: Greg Leiserson: U.S. Inequality and Recent Tax Changes: "Distribution tables provide a first-order approximation to the change in welfare...

...Change in welfare determined primarily by changes outside the agent���s control: mechanical change in tax and changes in relative prices:

Behavioral changes have no first-order impact on the well-being of the person changing behavior
(envelope theorem)
Recipe for constructing distribution tables that are informative about welfare:

compute change in tax liabilities and relative price effects (i.e. incidence assumptions)
exclude behavioral changes reflecting unconstrained, rational choice
include other behavioral changes (easier said than done, esp. when there are quantitatively
important market failures)

Converting dollar change in after-tax income into utility requires an assumption about the marginal utility of income (e.g. 1/after-tax income)

Conceptual difference between individual or family���s marginal utility and social welfare weights
used to evaluate redistributive policies

Policymakers��� desire for distribution tables may not reflect an ex ante desire for information about
welfare impacts, but plausible that the desire for tables excluding behavioral changes/sample families is
an implicit recognition that those changes are different...

Key: https://www.icloud.com/keynote/0O3-LDYoNHrTDBRw9namRGWhw
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