The coercive extraction of tax dollars is a costly activity. Estimates of the total cost of raising a dollar from the U.S. personal income tax are substantial in magnitude. So one would think that public finance textbook discussions of cost-benefit analysis and the optimal provision of public goods would explicitly incorporate the welfare costs and compliance costs of taxation. But in our sample of the public finance textbooks used at elite institutions, none integrates the welfare costs of taxation into discussions of the optimal provision of public goods or cost- benefit analysis. When these costs are ignored, the purportedly optimal quantity of public goods is in fact too high. Fortunately, this bias could—quite easily—be eliminated from public finance textbooks.
Appendix
Top ten graduate economics programs, 2009 ranking byU.S. News & World Report
1. Harvard University
2. Massachusetts Institute of Technology 3. Princeton University
4. University of Chicago 5. Stanford University
6. University of California, Berkeley 7. Yale University
8. Northwestern University 9. University of Pennsylvania 10. Columbia University Harvard University required texts
• Bird and Oldman (1990) • Case (1986)
• Cordes, Ebel, and Gravelle (2005) • Fisher (2006)
• Gruber (2007)
• Gupta, Clements, and Inchauste (2004) • Lewis (1984)
• Musgrave and Musgrave (1989) • Newbery and Stern (1987) • Prest (1985)
• Rosen and Gayer (2007) • Shome (1995)
• Steuerle (2004) • Stiglitz (2000)
Massachusetts Institute of Technology required text • Gruber (2009)
Princeton University
From syllabus “There are no textbooks …” University of Chicago
No syllabus found
Stanford University required text • Rosen and Gayer (2008) University of California, Berkeley
No syllabus found Yale University
No syllabus found
Northwestern University required texts • Gruber (2009)
• Slemrod and Bakija (2008) University of Pennsylvania required text
• Hyman (2010) Columbia University
No text information readily available from online syllabus
References
Ahmed, Shaghil, and Dean Croushore. 1996. The Marginal Cost of Funds with Nonseparable Public Spending.Public Finance Quarterly24: 216-236.
Ballard, Charles, and Don Fullerton. 1992. Distortionary Taxes and the Provision of Public Goods.Journal of Economic Perspectives6(3): 117-131. Ballard, Charles, and Steven Medema. 1993. The Marginal Efficiency Effects
of Taxes and Subsidies in the Presence of Externalities: A Computational General Equilibrium Approach.Journal of Public Economics52(2): 199-216. Ballard, Charles, John Shoven, and John Whalley. 1985. General Equilibrium
Computations of the Marginal Welfare Costs of Taxes in the United States.
American Economic Review75(1): 128-138.
Bird, Richard M., and Oliver Oldman, eds. 1990.Taxation in Developing Countries, 4th ed. Baltimore: Johns Hopkins University Press.
Brennan, Geoffrey, Cecil E. Bohanon, and Richard Carter. 1984. Public Finance and Public Prices: Towards a Reconstruction of Tax Theory.Public Finance/Finances Publiques39(2): 154-181.
Browning, Edgar K. 1987. On the Marginal Welfare Cost of Taxation.American Economic Review77: 11-23.
Browning, Edgar K. 2008. Stealing from Each Other: How the Welfare State Robs Americans of Money and Spirit. Westport, Conn.: Praeger.
Browning, Edgar K., and Mark A. Zupan. 2009. Microeconomics: Theory & Applications, 10th ed. Hoboken, N.J.: John Wiley & Sons.
Bush, George W., and the Council of Economic Advisers. 2005. Economic Report of the President, Transmitted to the Congress February 2005— Together With the Annual Report of the Council of Economic Advisers. Washington, D.C.: U.S. Government Printing Office.Link
Case, Karl E. 1986.Economics and Tax Policy. Boston: Oelgeschlager, Gunn & Hain. Cordes, Joseph J., Robert D. Ebel, and Jane G. Gravelle, eds. 2005. The Encyclopedia of Taxation & Tax Policy, 2nd ed. Washington, D.C.: Urban Institute Press.
Dahlby, Bev. 2008. The Marginal Cost of Public Funds: Theory and Applications. Cambridge, Mass.: MIT Press.
Feldstein, Martin. 1999. Tax Avoidance and the Deadweight Loss of the Income Tax.Review of Economics and Statistics81: 674-680.
Fisher, Ronald C. 2006.State and Local Public Finance, 3rd ed. Mason, Ohio: South- Western College Publishers.
Foldvary, Fred. 2005. Geo-Rent: A Plea to Public Economists.Econ Journal Watch
2(1): 106-132.Link
Fullerton, Don, and Yolanda Henderson. 1989. The Marginal Excess Burden of Differential Capital Tax Instruments.Review of Economics and Statistics71: 435-442.
Goode, Richard. 1984. Government Finance in Developing Countries. Washington, D.C.: Brookings Institution.
Goolsbee, Austan D., Steven Levitt, and Chad Syverson. 2013.Microeconomics. New York: Worth.
Gruber, Jonathan. 2007.Public Finance and Public Policy, 2nd ed. New York: Worth. Gruber, Jonathan. 2009.Public Finance and Public Policy, 3rd ed. New York: Worth. Gruber, Jonathan. 2013.Public Finance and Public Policy, 4th ed. New York: Worth. Gruber, Jonathan, and Emmanuel Saez. 2002. The Elasticity of Taxable
Income: Evidence and Implications.Journal of Public Economics84: 1-32. Gupta, Sanjeev, Benedict Clements, and Gabriela Inchauste, eds. 2004.
Helping Countries Develop: The Role of Fiscal Policy. Washington, D.C.: International Monetary Fund.
Hausman, Jerry. 2000. Efficiency Effects on the U.S. Economy from Wireless Taxation.National Tax Journal53(Sept.): 733-742.
Hyman, David N. 2010.Public Finance: A Contemporary Application of Theory to Policy, 10th ed. Mason, Ohio: South-Western Cengage Learning.
Internal Revenue Service (IRS). 2012. Statistics of Income—2010 Individual Income Tax Returns. Publication 1304 (Rev. 08-2012). Internal Revenue Service (Washington, D.C.).Link
Internal Revenue Service (IRS). 2013. SOI Tax Stats—Historical Data Tables. Internal Revenue Service (Washington, D.C.).Link
Jorgenson, Dale, and Kun-Young Yun. 1991. The Excess Burden of U.S. Taxation.Journal of Accounting, Auditing and Finance6: 487-508.
Jorgenson, Dale, and Kun-Young Yun. 2001. Investment, Volume 3: Lifting the Burden: Tax Reform, the Cost of Capital, and U.S. Economic Growth. Cambridge, Mass.: MIT Press.
Landsburg, Steven E. 2011. Price Theory, 8th ed. Mason, Ohio: South-Western Cengage Learning.
Lewis, Stephen Jr. 1984.Taxation for Development: Principles and Applications. New York: Oxford University Press.
Musgrave, Richard A., and Peggy B. Musgrave. 1989.Public Finance in Theory and Practice, 5th ed. New York: McGraw-Hill.
Newbery, David, and Nicholas Stern, eds. 1987. The Theory of Taxation for Developing Countries. New York: Oxford University Press.
Office of Management and Budget (OMB). 2014. Historical Tables, Budget of the United States Government, Fiscal Year 2015. Washington, D.C.: U.S. Government Printing Office.Link
Payne, James L. 1993. Costly Returns: The Burdens of the U.S. Tax System. San Francisco: ICS Press.
Prescott, Edward C. 2004. Why Do Americans Work So Much More Than Europeans?Federal Reserve Bank of Minneapolis Quarterly Review28: 2-15.Link
Prest, Allen R. 1985.Public Finance in Developing Countries, 3rd ed. New York: St. Martin’s Press.
Rosen, Harvey S., and Ted Gayer. 2007. Public Finance, 8th ed. New York: McGraw-Hill/Irwin.
Rosen, Harvey S., and Ted Gayer. 2008. Public Finance, 9th ed. New York: McGraw-Hill/Irwin.
Samuelson, Paul A. 1954. The Pure Theory of Public Expenditure. Review of Economics and Statistics36(4): 387-389.
Samuelson, Paul A. 1955. Diagrammatic Exposition of a Theory of Public Expenditure.Review of Economics and Statistics37(4): 350-356.
Shome, Parthasarathi, ed. 1995. Tax Policy Handbook. Washington, D.C.: International Monetary Fund.
Slemrod, Joel. 2005. “Options for Tax Reform”: A Review of the 2005 Economic Report of the President’s Tax Chapter.Journal of Economic Literature 43(3): 816-822.
Slemrod, Joel, and Jon Bakija. 2008. Taxing Ourselves: A Citizen’s Guide to the Debate Over Taxes, 4th ed. Cambridge, Mass.: MIT Press.
Slemrod, Joel, and Christian Gillitzer. 2014. Tax Systems. Cambridge, Mass.: MIT Press.
Smith, Adam. 1976 [1776]. An Inquiry into the Nature and Causes of the Wealth of Nations, eds. R. H. Campbell and A. S. Skinner. Oxford: Oxford University Press.
Steuerle, C. Eugene. 2004.Contemporary U.S. Tax Policy. Washington, D.C.: Urban Institute Press.
Stiglitz, Joseph E. 2000. Economics of the Public Sector, 3rd ed. New York: W.W. Norton & Co.
Stuart, Charles E. 1984. Welfare Costs per Dollar of Additional Tax Revenue in the United States.American Economic Review74: 352-362.
Thirsk, Wayne. 1990. A Benefit-Cost Evaluation of Tax Incentives in Jamaica. InTaxation in Developing Countries, 4th ed., eds. Richard M. Bird and Oliver Oldman, 192-199. Baltimore: Johns Hopkins University Press.
Varian, Hal. 2010. Intermediate Microeconomics: A Modern Approach, 8th ed. New York: W.W. Norton & Co.
Watson, Harry. 2005. Excess Burden. InThe Encyclopedia of Taxation & Tax Policy, 2nd ed., eds. Joseph J. Cordes, Robert D. Ebel, and Jane G. Gravelle. Washington, D.C.: Urban Institute Press.
Cecil Bohanon is a Professor of Economics at Ball State University. He obtained his B.A. from Wilmington College (Ohio) and his Ph.D. from Virginia Tech. He has published over 30 refereed professional articles, notes, and comments, and over 100 popular articles, policy monographs and newspaper editorials. His research interests include public choice, applied microeconomics, and economic education. His email address is [email protected].
John Horowitz (Ph.D., Texas A&M University, 1988) is Professor and Chair of the Department of Economics at Ball State University. His research focuses on microeconomics, public policy, and health economics. His publications have appeared in Economic Inquiry, Review of Economics and Statistics,
Health Economics,Public Choice, and others. His email address is [email protected].
James E. McClure (Ph.D., Purdue University, 1983) is Professor of Economics at Ball State University, where his research focus is microeconomics. His publications appear in journals such asEconomic Inquiry, Econ Journal Watch, Journal of Economic Behavior and Organization, andSouthern Economic Journal. His email address is [email protected].