Abstract
A popular understanding of the principle of efficiency is one that seems to require a laissez-faire market economy because, supposedly, taxes always reduce aggregate welfare. This chapter argues that the Just Deserts proposal, by imposing a carefully designed endowment tax, may realize a perfectly efficient economy under a broad class of conditions and, under real-world constraints, may surpass our current economy in terms of efficiency and welfare. Bringing the concepts of economic rents and endowment into a theory of desert, the chapter discusses lump-sum endowment taxes and shows that the Just Deserts proposal just is such a tax under a broad set of conditions. Lastly, the chapter provides a concrete demonstration of the flexibility of lump-sum endowment taxes and argues for specific parameters as canonical.
This is a preview of subscription content, log in via an institution.
Buying options
Tax calculation will be finalised at checkout
Purchases are for personal use only
Learn about institutional subscriptionsNotes
- 1.
Of course, some have argued that “the principle of efficiency and the principles of justice are completely distinct and mutually irreducible.” Sadurski (1985), 111, 267–275.
- 2.
Rawls (1999 (1971)), 58–62.
- 3.
Atkinson (2015).
- 4.
Arneson (2007), 266.
- 5.
Okun (1975).
- 6.
Although economists are accustomed to thinking of the “big trade-off” between efficiency and equity, there are of course other social welfare functions. My belief is that very, very few individuals have a desert neutral social welfare function but I hope to convince them below as well.
- 7.
Marrero and Rodríguez (2013).
- 8.
- 9.
For an attempt to philosophically carve out space for payment based upon differential compensation, cf. Dick (1975). Note, however, that the mistaken view of tastes and talents as qualitatively different (rather than seeing both as circumstances of chance upon which labor supply is dependent) lead to a partial theory of desert.
- 10.
Smith (1976 (1776)), 111.
- 11.
- 12.
Thus, some scholars argue that education serves as a screening mechanism for employers’ ignorance through the job competition, paper chase, and sheepskin models. Cf. Thurow (1975).
- 13.
Atkinson (2015), 251.
- 14.
Kaufman and Hotchkiss (2000), 410–414.
- 15.
Efficiency requires that production is on the production possibilities frontier and that each individual’s marginal rate of substitution is identical to the marginal rate of transformation for all pairs of commodities.
- 16.
- 17.
Lambert (2001), 175, 183.
- 18.
Atkinson and Stiglitz (1980), 343.
- 19.
Benshalom and Stead (2010), 1520.
- 20.
In addition to equity and efficiency, many would add simplicity as a third goal of any system of taxation. I believe Just Deserts is orders of magnitude simpler than our current system. Simon (1977).
- 21.
That is, 100% of payment for apple production is profit.
- 22.
Alperovitz and Daly (2008).
- 23.
Cautiously, given our informational limitations, “there is nothing that can be said about, for example, the [precise] income level that should be attached to being [precisely this] hard-working.” Matravers (2011), 147.
- 24.
Hobbes (1991 (1651)).
- 25.
- 26.
Fleurbaey (2008), 18.
- 27.
Fleurbaey (2008), 32.
- 28.
Murphy and Nagel (2004), 121–125.
- 29.
Shaviro (2002), 125.
- 30.
Murphy and Nagel (2004), 123.
- 31.
For a rejection of Murphy and Nagel’s misplaced distinction between an endowment tax and other taxes on grounds of freedom, cf. Stark (2005); A similar, concise assessment: “By arguing that the endowment tax would enslave the highly endowed, critics of the endowment tax are subjecting it to a moral standard they do not apply to contemporary policies that apply similar standards but are considered politically and morally legitimate.” Benshalom and Stead (2010), 1526.
- 32.
It is perhaps Mirrlees’ foundational scholarship that suggested “maximum potential earnings” as the correct referendum. Mirrlees’ groundbreaking work suggested that the tax base should be an “[individual]’s income-earning potential” and, unlike endowment tax proponents, that “the most reliable indicator of [their] income-earning potential is [their observed] income.” Mirrlees (1971), 175.
- 33.
- 34.
“The talent slavery objection is aimed at an endowment tax which defines endowment as one’s maximum wage rate multiplied by the maximum number of hours one could work...” Note also that an ex post calculation of endowment, separated from autonomous effort, dismisses David Hasen’s objection that “the system does not produce … [earnings] capacity.” Zelenak (2006).
References
26 U.S. Code § 63 - Taxable Income Defined. 2000.
Aaberge, Rolf, Magne Mogstad, and Vitorocco Peragine. 2011. Measuring Long-Term Inequality of Opportunity. Journal of Public Economics 95 (3): 193–204.
Abramovitz, Mimi. 1996. Regulating the Lives of Women: Social Welfare Policy from Colonial Times to the Present. Boston, MA: South End Press.
Adler, Matthew. 2011. Well-Being and Fair Distribution: Beyond Cost-Benefit Analysis. Oxford: Oxford University Press.
Allaire, J.J., et al. 2018. rmarkdown: Dynamic Documents for R. R package version 1.11.
Almås, Ingvild, et al. 2011. Measuring Unfair (in)Equality. Journal of Public Economics 95 (7–8): 488–499.
Alperovitz, Gar, and Lew Daly. 2008. Unjust Deserts: How the Rich Are Taking Our Common Inheritance and Why We Should Take It Back. New York, NY: The New Press.
Alstott, Anne, and Bruce A. Ackerman. 1999. The Stakeholder Society. New Haven, CT: Yale University Press.
Anderson, Elizabeth. 1999. What Is the Point of Equality? Ethics 109 (2): 287–337.
Anderson, Elizabeth. 2015. The Fundamental Disagreement Between Luck Egalitarians and Relational Egalitarians. In Distributive Justice and Access to Advantage: G. A. Cohen’s Egalitarianism, ed. Alexander Kaufman, 21–39. Cambridge: Cambridge University Press.
Aristotle. 1999. Nicomachean Ethics. 2nd ed. Trans. Terence Irwin. Indianapolis, IN: Hackett Publishing Company, Inc.
Arneson, Richard J. 1989. Equality and Equal Opportunity for Welfare. Philosophical Studies 56 (1): 77–93.
Arneson, Richard J. 1990. Liberalism, Distributive Subjectivism, and Equal Opportunity for Welfare. Philosophy & Public Affairs 19 (2): 158–194.
Arneson, Richard J. 2003. The Smart Theory of Moral Responsibility. In Desert and Justice, ed. Serena Olsaretti, 233–258. Oxford: Oxford University Press.
Arneson, Richard J. 2004. Luck Egalitarianism Interpreted and Defended. Philosophical Topics 32 (1/2): 1–20.
Arneson, Richard J. 2007. Desert and Equality. In Egalitarianism: New Essays on the Nature and Value of Equality, ed. Nils Holtug and Kasper Lippert-Rasmussen, 262–293. Oxford: Oxford University Press.
Atkinson, Anthony Barnes. 2015. Inequality. Cambridge, MA: Harvard University Press.
Atkinson, Anthony Barnes, and Joseph E. Stiglitz. 1980. Lectures on Public Economics. Maidenhead: McGraw-Hill.
Baker, Michael, and Gary Solon. 1999. Earnings Dynamics and Inequality Among Canadian Men, 1976–1992: Evidence from Longitudinal Income Tax Records. Working Paper 7370. NBER - National Bureau of Economic Research.
Barrett, Malcolm. 2018. ggdag: Analyze and Create Elegant Directed Acyclic Graphs. R package version 0.1.0.
Barry, Brian. 1965. Political Argument. New York, NY: Humanities Press.
Barry, Brian. 1991. Liberty and Justice: Essays in Political Theory. Vol. 2. Oxford: Oxford University Press.
BEA - Bureau of Economic Analysis. 2015. Table 6.6D. Wages and Salaries Per Full-Time Equivalent Employee by Industry. http://bea.gov/iTable/iTable.cfm?reqid=9&step=1#reqid=9&step=3&isuri=1&904=2005&903=201&906=q&905=2014&910=x&911=0.
Becker, Gary S. 1988. Family Economics and Macro Behavior. American Economic Review 78: 1–13.
Beckert, Jens. 2008. Inherited Wealth. Princeton, NJ: Princeton University Press.
Bedau, Hugo. 1967. Radical Egalitarianism. In Nomos IX, ed. R. Pennock and J. Chapman, 3–27. Palo Alto, CA: Atherton Press
Behrman, Jere R., and Paul Tarbman. 1985. Intergenerational Earnings Mobility in the United States: Some Estimates and a Test of Becker’s Intergenerational Endowments Model. The Review of Economics and Statistics 67 (1): 144–151.
Benshalom, Ilan, and Kendra Stead. 2010. Values and (Market) Valuations: A Critique of the Endowment Tax Consensus. Northwestern University Law Review 104 (4): 1511–1558.
Benus, Jacob, and James N. Morgan. 1975. Time Period, Unit of Analysis, and Income Concept in the Analysis of Income Distribution. In The Personal Distribution of Income and Wealth. National Bureau of Economic Research Studies in Income and Wealth, ed. James D. Smith, vol. 39. New York, NY: Columbia University Press.
Björklund, Anders, Markus Jäntti, and John E. Roemer. 2011. Equality of Opportunity and the Distribution of Long-Run Income in Sweden. Discussion Paper 5466. Bonn: Forschungsinstitut zur Zukunft der Arbeit (IZA).
BLS - Bureau of Labor Statistics. 2014. Employer Costs for Employee Compensation. http://www.bls.gov/news.release/ecec.nr0.htm.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Copyright information
© 2020 The Author(s)
About this chapter
Cite this chapter
Dwyer, J.d.l.T. (2020). Efficiency and Just Deserts: Economists’ Big Trade-Off. In: Chance, Merit, and Economic Inequality. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-21126-4_5
Download citation
DOI: https://doi.org/10.1007/978-3-030-21126-4_5
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-030-21125-7
Online ISBN: 978-3-030-21126-4
eBook Packages: Political Science and International StudiesPolitical Science and International Studies (R0)