I Owe an Apology to Stefanie Stantcheva
I messed this up the first time. And I apologize to Stefania. Let me see if I can fix it: The very sharp Stefanie Stantcheva gets trapped into linguistic quicksand, and disappears into the mire. Her Let me disagree with the very sharp Stefanie Stantcheva's statement that "it’s good to be clear... whether you are making an efficiency argument about the reaction to taxes or expressing a social value judgment..." is totally incoherent: so-called "efficiency" arguments rest on a social value judgment—that the existing distribution of wealth corresponds to utility and deservingness, so that reducing the areas of the economy's Harberger triangles would raise societal wellbeing, holding the distribution of wealth constant, while increasing the areas of the economy's Harberger triangles would raise societal wellbeing, holding the distribution of wealth constant. I think that is wrong: the Harberger triangles' changes go to and come from people with different marginal utilities of wealth. Thus whether the total of behavioral responses to balance-preserving fiscal interventions raise or reduce societal wealth, holding the distribution of wealth constant, hinges on who the Harberger triangles go to or come from. If the people they go to and come from do not have the same marginal utility of wealth, then:** "efficiency" can be inefficient.
And to claim the the current distribution of wealth corresponds to utility and deservingness ought to be a lie too big for anyone to swallow. **It's not anything Stefanie Stantcheva would ever say—rather the reverse—but it does implicitly underpin the belief that the sum-of-the-areas-of-the-economy's-Harberger-triangles is meaningful.
I think all these messes are potentially avoided by working in utility space rather than wealth space from teh get-go. But what do I know?
And, otherwise, her twitter thread is totally great: Stefanie Stantcheva: "Optimal Capital Taxation in 7 Tweets: "Simplifying a lot, but here is the core logic...
...How much you (e.g., the government) want to tax anything (a given asset, or income from a capital asset or labor) depends to a first order on 2 factors:
How much you value transfers to the people who own this asset or income. Value them more? You should tax it less. Often, (but it's a matter of social judgement), societies value $1 given to a lower-income person more than $1 to a higher-income person.
How strongly people who own the asset or receive the income will react to taxes (e.g, will they save less? work less? how much less?). The stronger this reaction, the less you can tax it.
The data can tell us who owns each asset or gets each income flow (part of factor 1) and how strongly each will react to a tax change (factor 2). But, deciding how much we, as a society, value transfers to and money in the hand of different people is ultimately a social and political choice that the data alone cannot make for us. Eg, one may decide to not tax financial assets because “They react very strongly to taxes by disappearing abroad!” (could be checked in data) &/or because “Individuals with financial wealth are job creators & deserve to keep their money!” (deservingness is a matter of judgment).
Or, you may decide to not tax housing despite the fact that is is very immobile & slow to react to taxes, because it's owned more broadly including by lower-income people & you don’t want to take away from them.
It’s good to be clear, when arguing for one tax change or another, whether you are making an efficiency argument about the reaction to taxes or expressing a social value judgment. These tend to often be blurred in the debate...
#shouldread
