Welfarism, Libertarianism, and Fairness in the Economic Approach to Taxation

Abstract

The economic theory of income taxation has recently been eager to apply philosophically prominent approaches to the selection of the optimal tax on earnings. This chapter presents and compares the consequentialist–utilitarian approach to taxation developed by Mirrlees and defended by Murphy and Nagel, to the fair allocation approach, as adapted to taxation problems by Fleurbaey and Maniquet. The fairness approach does retain an element of libertarianism and gives some value to market earnings. The two approaches have different recommendations for taxation, especially regarding low incomes, which are given absolute priority under the fairness approach, and may be submitted to lower tax rates out of respect for the diversity of preferences among the least skilled workers.