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Itai Sher, associate professor of economics, has published a new paper exploring the reliability of Generalized Social Marginal Welfare Weights (GSMWW) in tax policy comparisons. The paper, published in the November issue of the American Economic Review, scrutinizes a 2016 framework by Emmanuel Saez and Stefanie Stantcheva, who attempt to integrate ethical considerations beyond pure utilitarianism into tax policy evaluations. Sher’s research reveals mathematical inconsistencies in the GSMWW approach, and argues that incorporating broader values into optimal tax analysis requires a more complete revision of traditional theory. 

“You have to rethink more fundamentally how you include values and try to think more carefully about how you would model those values and not assume that it would be similar to the more traditional way that economists evaluate policies,” he says.

Saez and Stantcheva intended to make tax policy analysis more inclusive of non-utilitarian values, such as fairness, merit and individual contributions to society. By adjusting traditional “welfare weights,” which account for inequalities in assessing tax reforms, to account for a broader set of ethical considerations, they purport to show that the traditional economic analysis of taxes can simply be extended to account for a much broader set of ethical considerations.

However, Sher shows that GSMWW implicitly leads to social preference cycles, essentially that Tax Policy A is better than Tax Policy B, and Policy B is better than C, but then C is better than A. 

The problem, he argues, is that using welfare weights to adjust benefits going to different people is very utilitarian, making it impossible to shoehorn the richer values into that format. Sher demonstrates that unless the weights are “structurally utilitarian,” they lead to inconsistencies.

“Structural utilitarianism is the dividing line that I found between the types of weights that yield consistent assessments of tax policies and the types of weights that yield inconsistent assessments,” he explains. “If one cares about fundamental entitlements, desert or justice, those values cannot be captured simply by modifying the weights that one puts on benefits to different people.”

Sher’s findings inform ongoing debates in welfare economics, particularly about balancing utilitarian efficiency with broader social values. By showing that GSMWW may not capture these values consistently, his paper highlights the opportunity for further revisions to the theory, emphasizing the need for a more comprehensive ethical foundation that departs more thoroughly from utility-based principles.