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2005-08-01 | Peer Reviewed

Distributional Weights in Cost Benefit Analysis – Should we forget about them?

Johansson-Stenman, Olof. 2005. “Distributional Weights in Cost Benefit Analysis – Should we forget about them?.” Land Economics 81:3: 337-352.
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Many argue that it is socially inefficient to use distributional weights in cost-benefit analysis, and that doing so implies large inefficiency losses, when distributional matters can be dealt with through income taxation, instead.

Our results question this view, by showing a large range of case when distributional weights are (second-best) optimal to use. One example is when different provided goods effect tax-revenues equally per dollar spent; utility functions that are separable in the provided goods is sufficient for this. Most results hold for linear and non-linear income taxes and whether they are optimal or not. General policy implications are discussed.