ABSTRACT
When assessing government policies, economists are guided by certain basic principles. To address the possibility that benefits from government projects may vary with income, consider a case in which a public good produces benefits that rise in proportion to income. Aanund Hylland and Richard Zeckhauser, in an important but underappreciated article, use the device of benefit-offsetting tax adjustments to show that distributive weights are unnecessary in cost-benefit analysis. Other literature on public goods and regulation in essence utilizes tax adjustments that have an incidence proportional to income whereas hypothesized benefits rise with income less than proportionally, as a consequence of subtle modeling assumptions. Public goods must be financed, and environmental taxes and subsidies need to be accompanied by some other fiscal adjustment if budget balance is to remain unaffected. Scholarship on rules of policy analysis—which has focused on public goods and externalities, along with worries about distribution and labor supply distortion—can usefully be clustered into several overlapping waves.
