The optimum tax approach studied in Chapters 2 and 3 has, in my judgement, contributed substantially to furthering our understanding of the issues involved in the design of taxation and income maintenance. By posing the government's problem in a precise manner, it has allowed us to clarify the role of different considerations and the way in which they are interrelated. The general notion of a trade-off between equity and efficiency, which one finds in what Aaron calls the 'old-time religion of public finance' ( 1989: 10), takes on a concrete form in the equations set out in the previous chapters. At the same time, the analysis, in becoming more precise, has tended to focus on a part of the picture to the exclusion of other elements. For this, the optimum tax literature has quite reasonably been criticized.
In this chapter I consider two main lines of criticism. The first is that the optimum tax literature, concerned with a government which maximizes social welfare, takes too narrow a view of the objectives of policy. We need to consider other objectives. Account has been taken in our earlier analysis of the possibility that different people may have different distributional values (different values of γ for example), but we must also recognize that a single person may apply several different criteria when judging policy options. There may in this sense be a plurality of values. The second objection, associated particularly with the public choice school, is that the optimum tax analysis fails to take account of the way in which tax and benefit policy is actually formed. No attempt is made here to provide a full review of the public choice literature, which under the influence of Buchanan, Tullock, and others has grown extensively, but in the second part of this chapter (Sections 4.6 and 4.7) I consider the implications for the design of policy. In