Measuring Welfare Changes and Tax Burdens.

• Author: Snow, Sandra L.
• Position: Review

By John Creedy. Cheltenham, UK: Edward Elgar Publishing, 1998. Pp. xiii, 221. $85.00.

Partially funded by university and government grants and authored by John Creedy, Truby Williams Professor of Economics at the University of Melbourne, Australia, this treatise, which is divided into three parts, generally addresses both conceptual and practical concerns regarding measurement of welfare changes resulting from taxation. In particular, the first part is introductory and consists of nine pages of unreferenced lengthy quotations from subsequent chapter introductions, while the remaining parts are more substantive.

Composed of five chapters, the second part is essentially a selected survey of literature relating to microeconomic distributional effects of taxation, as evidenced by the extensive, 1966-1998, 161-citation bibliography. Chapters 2 and 3 review alternative concepts in demand analysis and of welfare change, respectively. Specifically, because of the central role that demand theory plays in the examination of welfare change, both Marshallian- and compensated- or Hicksian ordinary- and inverse-demand functions are mathematically derived. In addition, various types of preferences and utility functions are detailed. Understanding of this exposition requires more than a rudimentary knowledge of calculus. Similarly, the third chapter mathematically defines basic compensating and equivalent welfare change variations and examines various approximations to welfare measures that are designed to reduce information necessary for calculation. These approximations include that derived from the compensated-demand function, which involves compensated elasticities that are independent of utility function form and enable calculation of aggregate monetary welfare changes. Also included is that approximation derived from the Marshallian demand function that uses Marshallian elasticities and is based on a social-welfare function that explicitly allows for a judge's aversion to inequality. Furthermore, measures of excess burden under several income tax and labor supply variations are compared. Both of these two chapters provide much of the fundamental theoretical basis for the applications discussed in the third part.

Given this theoretical foundation, the fourth chapter specifies first a direct-utility function and derives the mathematical conditions necessary for obtaining the parameters of the linear expenditure system (LES). Next, as an alternative...