Inframarginalism and the Distributive Corollary of the Coase Theorem
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Description
The double-distortion argument holds that income taxation is more efficient than redistribution through changes in legal rules because a change in a legal rule distorts both the market to which the rule applies and, by altering incomes of market participants, the labor market as well. The argument succeeds only if it is possible to achieve the same distributive outcomes with the income tax as with changes to legal rules. This is not the case, however, because tax authorities cannot obtain information regarding the extent of the surplus available for redistribution without altering legal rules in individual markets and observing whether the effect is inframarginal (in which case there is surplus available for redistribution) or marginal (in which case there is not). This point is illustrated using the Ayres and Talley model of Coasean bargaining with divided entitlements.
Publication Date
9-26-2025
Publisher
Cambridge University Press
ISBN
9781009306775
First Page
124
Last Page
160
Disciplines
Economics | Law | Tax Law
Recommended Citation
Matthew Dimick, Inframarginalism and the Distributive Corollary of the Coase Theorem in Toward an Inframarginal Revolution: Redistributing the Gains from Trade (Ramsi Woodcock, ed., Cambridge University Press 2025).
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