Monday, February 16, 2009

One Solution - Tax Tall People

The Irish Government are currently considering many options to raise finance - some options such as the tax on air travel have been considered potentially very distortionary. In light of the new climate, its worth looking again at the working paper from a few years back on taxing people based on height. Before we start getting complaints, Im not advocating this but it is an interesting thought experiment. The basic idea, as most people who read this know, is that taller people earn more and that there is not much you can do about your height. Thus, you can achieve a potential raising of finance and redistribution of income without creating a distortion. Before you read the paper its worth thinking in your own mind why this idea seems wrong (assuming it does seem wrong to the majority of people). In my view, the objection against it is well articulated on page 15 of the paper.

http://www.economics.harvard.edu/faculty/mankiw/files/Optimal_Taxation_of_Height.pdf

6 comments:

Michael Daly said...

It also seems there would be a lot of practical difficulties with this. The optimal taxation argument could be made for any largely heritable individual difference characteristic that is reliably related to earnings. This probably doesn't make for a very efficient system. Meausuring height is a cost for a start as you could not rely on self-report. IQ is highly heritable and related to earnings so the tests would have to be administered to the population. Great for psychologists and economists though, more data! Gender is on the record, and therefore cheap, so maybe they should go with that one first. It does seem like the thin edge of a wedge though.

Liam Delaney said...

the clever thing about Mankiw's paper is that many of the reasons people advance against taxing height are tricky to support - for example, the problem of measurement is trivial compared to the problem of measuring income. I like the way you think taxing gender is only the thin end of the wedge!

Kevin Denny said...

I think short people should be taxed heavily as it would give then an incentive to be taller.

Alan Fernihough said...

A tax structure that insists I pay a higher rate than Michael O'Leary? Eh thanks but no thanks...

Stephen Kinsella said...

tax the tall (like Liam), and subsidize the short (like myself). It'll be wonderful, but why stop there? Why not tax the clear-skinned to equalise them with the spotty? Or the slightly lopsided with the true runners? Or the fit with the fat? Once you start taxing people with this approach, things can get Monty-Python esque really quickly.

Liam Delaney said...

again though, this is the beauty of the paper. The objections people come up with dont really pass. Taxing clear-skinned versus spotty people wouldnt work as you would create an incentive for clear-skinned people to become spotty. Again taxing fit people wouldnt work because you disincentivise effort. Having said that, writing a taxation policy that maximised comic potential is something worth thinking about!