Review of Austrian Economics

The Preferred Tax Type: Comment on Herbener

The Review of Austrian Economics

A standard theorem in neoclassical public finance holds that income taxes are preferred to equal revenue excise taxes. Herbener (1988) rejects this theorem because the proof is (a) based upon methodologically suspect indifference curves and (b) must follow a certain conceptual ordering-namely the excise tax must first be placed upon consumers who are then given the option of facing an equal-revenue income tax and not vice versa. This comment demonstrates that indifference curves are not required to prove the theorem nor must the proof of the theorem follow a specific order.

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