AltInst: Taxing Ability

Journal Of Public Economics Vol. 72 (2) pp. 183-211, 1999

If we knew ability, how would we tax individuals?

Erik J.S. Plug
Bernard M.S. van Praag
Joop Hartog

The suggestion to tax people on earnings capacity instead of earnings has
been around for a long time and is attractive in terms of economic
efficiency. In this paper we reflect on the feasibility of such a system
and give an exploratory empirical implementation. We apply the Leyden
Welfare Function of Income, a survey based measure of an individual's
welfare associated with income, to derive implications for ability
taxation. Under the assumption that IQ and schooling reflect earnings
capacity, we derive the tax functions using different criteria to
distribute the utility loss due to taxation.

http://www.elsevier.nl/cas/tree/store/pubec/sub/1999/72/2/1804.pdf

Robin Hanson rhanson@gmu.edu http://hanson.gmu.edu
Asst. Prof. Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030-4444
703-993-2326 FAX: 703-993-2323

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Received on Wed Nov 22 15:31:09 2000