If this is true, wouldn’t we have to worry about correlation between types of tax? Taxing A at 1 and B at 1 has social cost 2 if they’re totally independent and social cost 4 if they’re actually the same thing.
It also bothered me. I think we should interpret “lots of small taxes” as “taxing wide range of trades and activities”, rather than literally having lots of different kinds of taxes. For example it seems clearly better to have one income tax for the whole population than inventing separate taxes for various groups of people (and probably missing some).
We still need to worry about correlations—obviously taxing one thing will affect other markets.
I think the reverse is true as well—many “same” taxes include diversity already. Taxing “consumption” is actually many millions of different things (with some correlation, but not 100%). Likewise “income” or even “regular income” is taxing any of many many choices of income.
To be clear, this is the low-order approximation around 0; as explained in Paul’s link (sibling to this) the effect away from zero involves the shape of the supply and demand curves through the relevant region of prices (and the stated claim holds when they’re linear).
Could you explain that in more detail? Why is that?
https://en.wikipedia.org/wiki/Deadweight_loss
If this is true, wouldn’t we have to worry about correlation between types of tax? Taxing A at 1 and B at 1 has social cost 2 if they’re totally independent and social cost 4 if they’re actually the same thing.
It also bothered me. I think we should interpret “lots of small taxes” as “taxing wide range of trades and activities”, rather than literally having lots of different kinds of taxes. For example it seems clearly better to have one income tax for the whole population than inventing separate taxes for various groups of people (and probably missing some).
We still need to worry about correlations—obviously taxing one thing will affect other markets.
I think the reverse is true as well—many “same” taxes include diversity already. Taxing “consumption” is actually many millions of different things (with some correlation, but not 100%). Likewise “income” or even “regular income” is taxing any of many many choices of income.
To be clear, this is the low-order approximation around 0; as explained in Paul’s link (sibling to this) the effect away from zero involves the shape of the supply and demand curves through the relevant region of prices (and the stated claim holds when they’re linear).