February 9, 2008 by Tom Armstrong.

The conservative Spanish Partido Popular has proposed gender-based taxation in line with recent research and several Vox columns by Alberto Alesina and Andrea Ichino. Here one of Europe’s most eminent labour economists makes the counter argument.

Update: If not gender, how about height? (HT: Mankiw)

Intro:

This paper can be interpreted in one of two ways. Some readers can take it as a small, quirky contribution aimed to clarify the literature on optimal income taxation. Others can take it as a broader e¤ort to challenge that entire literature. In particular, our results can be seen as raising a fundamental question about the framework for optimal taxation for which William Vickrey and James Mirrlees won the Nobel Prize and which remains a centerpiece of modern public finance.

More than century ago, Edgeworth (1897) pointed out that a Utilitarian social planner with full information will be completely egalitarian. More specically, the planner will equalize the marginal utility of all members of society; if everyone has the same separable preferences, equalizing marginal utility requires equalizing after-tax incomes as well. Those endowed with greater than average productivity are fully taxed on the excess, and those endowed with lower than average productivity get subsides to bring them up to
average.

Vickrey (1945) and Mirrlees (1971) emphasized a key practical difficulty with Edgeworth’s solution: The government does not observe innate productivity. Instead, it observes income, which is a function of productivity and effort. The social planner with such imperfect information has to limit his Utilitarian desire for the egalitarian outcome, recognizing that too much redistribution will blunt incentives to supply effort. The Vickrey-Mirrlees approach to optimal nonlinear taxation is now standard; for some recent examples of its application, see Saez (2002), Golosov, Kocherlakota, and Tsyvinski (2003), Albanesi and Sleet (2006), and Kocherlakota (2006), and for an overview of this growing literature, see Golosov, Tsyvinski, and Werning(2006).

Although Vickrey and Mirrlees assumed that income was the only piece of data the government could observe about an individual, that assumption is far from true. In practice, a person’s income tax liability isa function of many variables beyond income, such as mortgage interest payments, charitable contributions, health expenditures, number of children, and so on. Following Akerlof (1978), these variables can be
considered “tags” that identify individuals whom society deems worthy of special support. This support is usually called a “categorical transfer” in the substantial literature on optimal tagging (e.g., Mirrlees 1986, Kanbur et al. 1994, Immonen et al. 1998, Viard 2001, Kaplow 2007). In this paper, we use the Vickrey-Mirrlees framework to explore the potential role of another variable: the taxpayer’s height.

The inquiry is supported by two legs, one theoretical and one empirical. The theoretical leg is that, according to the theory of optimal taxation, any exogenous variable correlated with productivity should be a useful indicator for the government to use in determining the optimal tax liability (e.g., Saez 2001, Kaplow2007).1 The empirical leg is that a person’s height is strongly correlated with his or her income. Judge and
Cable (2004) report that an individual who is 72 in. tall could be expected to earn $5,525 [in 2002 dollars] more per year than someone who is 65 in. tall, even after controlling for gender, weight, and age.”Persico, Postlewaite, and Silverman (2004) …found similar results and report that “among adult white men in the United States, every additional inch of height as an adult is associated with a 1.8 percent increase in wages.” Case
and Paxson (2006) write that “For both men and women…an additional inch of height [is] associated with a one to two percent increase in earnings.” This fact, together with the canonical approach to optimal taxation, suggests that a person’s tax liability should be a function of his height. That is, a tall person of a given income should pay more in taxes than a short person of the same income. The policy simulation presented below confirms this implication and establishes that the optimal tax on height is substantial.

Many readers will  find the idea of a height tax absurd, whereas some will find it merely highly unconventional. The purpose of this paper is to ask why the idea of taxing height elicits such a response even though it follows ineluctably from a well-documented empirical regularity and the dominant modern approach to optimal income taxation. If the policy is viewed as absurd, defenders of this approach are bound to offer
an explanation that leaves their framework intact; otherwise economists ought to reconsider this standardapproach to policy design.

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February 9, 2008 by Tom Armstrong.

The Clintons in the White House:

Other presidents, especially the Reagans, had refurbished the presidential mansion and received gifts for redecorating, but all the gifts stayed at the White House, becoming gifts to the nation. Not with the Clintons. In January 2001, Hillary Clinton began shipping furniture from the White House to her New York home. These items had all been donated as part of the $396,000 redecoration undertaken by the Clintons in 1993 and were not private, but public, property. Under intense criticism, the Clintons returned four items clearly marked “National Park Service,” and in another return,  sent back a “truckload of couches, lamps and other furnishings.”

And let’s not forget the pardons for dollars:

On his last day alone, [Bill] Clinton issued 140 pardons and 36 sentence commutations…. Among those pardoned was a group of Puerto Rican terrorists responsible for 130 bombing attacks in Chicago, New York, and other locations.

Source: A Patriot’s History of the United States.

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