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• Working Paper | 2020

  Designing, not Checking, for Policy Robustness: An Example with Optimal Taxation

  Benjami Lockwood, Afras Y. Sial and Matthew C. Weinzierl

  Economists typically check the robustness of their results by comparing them across plausible ranges of parameter values and model structures. A preferable approach to robustness—for the purposes of policymaking and evaluation—is to design policy that takes these ranges into account. We modify the standard optimal income tax model to include the policymaker’s subjective uncertainty over parameter values, and we characterize robust optimal policy as that which maximizes expected social welfare. After calibrating uncertainty over the elasticity of taxable income from past empirical work and novel survey data on economists’ beliefs, we compare the implied robust optimal marginal tax rates to the alternative benchmark policy based on the best point estimates of relevant parameters. Our results suggest that robust optimal marginal tax rates are typically more progressive than in benchmark analyses, raising top marginal tax rates by between 5 and 7 percentage points, and generating modest expected welfare gains.

  Citation:

  Lockwood, Benjami, Afras Y. Sial, and Matthew C. Weinzierl. "Designing, not Checking, for Policy Robustness: An Example with Optimal Taxation." NBER Working Paper Series, No. 28098, November 2020.  View Details

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• Case | HBS Case Collection | April 2020 (Revised June 2020)

  SpaceX, Economies of Scale, and a Revolution in Space Access

  Matthew C. Weinzierl, Kylie Lucas and Mehak Sarang

  From the time he transformed the world of online banking, Elon Musk established himself as a bold innovator. After selling X.com to PayPal in 2002, he founded a series of revolutionary start-ups, starting with Space Exploration Technologies (SpaceX). Hoping to "make human life multiplanetary", Musk aimed to establish the first Mars civilization, but was unable to procure rockets that would be cheap or reliable enough to make the journey. Over the course of the next decade, SpaceX developed a line of revolutionary rockets that transformed the commercial space launch industry. Using reusable rockets to exploit the benefits of economies of scale, SpaceX cut costs to orbit by a factor of 18 and captured a large percentage of the global launch market, once thought to be inaccessible to newcomers in the industry. But after a remarkable decade, Musk's original goal to reach Mars seemed both within reach and impossibly optimistic. SpaceX developed technologies that would be critical in supporting a crewed mission to Mars, but the cost to get there was estimated to be well above $200 billion dollars in 2014, nowhere near revenues from the launch services market. Would there be enough demand for launch services to make Elon Musk's vision a possibility, or would SpaceX have to find other ways to get there?

  Keywords: space tech; space access; vision; Economies of Scale; Technological Innovation; Emerging Markets; Commercialization; Finance; Aerospace Industry;

  Citation:

  Weinzierl, Matthew C., Kylie Lucas, and Mehak Sarang. "SpaceX, Economies of Scale, and a Revolution in Space Access." Harvard Business School Case 720-027, April 2020. (Revised June 2020.)  View Details

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• Article | Fiscal Studies: The Journal of Applied Public Economics | June 2020

  Understanding Different Approaches to Benefit-Based Taxation

  Robert Scherf, Matthew C. Weinzierl, Robert Scherf and Matthew C. Weinzierl

  The normative principle of benefit-based taxation has exerted substantial influence on many areas of public finance, but it has been largely set aside in the modern theoretical approach to optimal income taxation, where welfarist objectives dominate. A prerequisite for that gap to close is the clarification of what benefit-based income taxation would mean, specifically in a first-best setting. This paper seeks to provide clear, accessible descriptions and novel graphical representations of four major approaches to first-best benefit-based taxation, explain how these approaches relate to each other, and apply them within the Classical Benefit-Based framework for optimal income taxation of Smith (1776).

  Keywords: benefit-based taxation; public goods; Lindahl; Optimal taxation; Taxation;

  Citation:

  Scherf, Robert, and Matthew C. Weinzierl. "Understanding Different Approaches to Benefit-Based Taxation." Fiscal Studies: The Journal of Applied Public Economics 41, no. 2 (June 2020): 385–410. (Also Harvard Business School Working Paper, No. 19-070, August 2019. (Revised January 2019), and NBER Working Paper Series, No. 26276, September 2019.)  View Details

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