Differences in Values

Suppose that Peter and Paula both take the same amount of water from the town well. To pay for maintaining the well, the town taxes its residents. Peter has income of $50,000 and is taxed $5,000 or 10 percent of his income. Paula has income of $10,000 and is taxed $2,000, or 20 percent of her income.

Is this policy fair? If not, who pays too much and who pays too little? Does it matter whether Paula,s low income is due to a medical disability or to her decision to pursue a career in acting? Does it matter whether Peter’s high income is due to a large inheritance or to his willingness to work long hours at a dreary job?

These are difficult questions on which people are likely to disagree. If the town hired two experts to study how the town should tax its residents to pay for the well, we would not be surprised if they offered conflicting advice.

This simple example shows why economists sometimes disagree about public policy. As we learned earlier in our discussion of normative and positive analysis, policies cannot be judged on scientific grounds alone. Economists give conflicting advice sometimes because they have different values. Perfecting the science economics will not tell us whether Peter or Paula pays too much.

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