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Should We Use Distributional Weights in CBA When Income Taxes Can Deal with Equity?

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  • Johansson-Stenman, Olof

    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

Abstract

Kaplow (1996) and others argue forcefully in favor of using the standard cost-benefit test alone, without any distributional concern, given “standard simplifying assumptions.” This paper, on the contrary, demonstrates that distributional weights, equal to the social marginal utility of income, should be applied in cost-benefit analysis, given weak separability in public goods instead of in leisure. This result holds for linear as well as non-linear income taxes, and whether they are optimal or not. A correspondingly modified Samuelson rule is derived and more general policy recommendations discussed.

Suggested Citation

  • Johansson-Stenman, Olof, 2001. "Should We Use Distributional Weights in CBA When Income Taxes Can Deal with Equity?," Working Papers in Economics 35, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0035
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    References listed on IDEAS

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    Cited by:

    1. Lundholm, Michael, 2005. "Cost-Benefit Analysis and the Marginal Cost of Public Funds," Research Papers in Economics 2005:3, Stockholm University, Department of Economics.

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    More about this item

    Keywords

    public goods; distributional weights; equity and efficiency; separability; cost-benefit; optimal taxation;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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