Friday, January 22, 2010

A Tad Too Strong

A JPT article summarizing Mankiw's article on optimal height taxation:
One correlate of ability is easy to measure and impossible to game: your height.
Impossible? I don't know about you, but one of the things I find most exciting about this idea is to find out how people really would respond to this tax. One of friends is currently undergoing therapy because she "hunched" as a child, and therefore should actually be a little taller if her spinal muscles learn to relax. Another friend of mine is dealing with a genetic spinal issue that is causing him to gradually lose height. I doubt either of them would change their final choice to deal with these issues, but would it make it easier to delay treatments?

Extreme examples, yes, but these are just things I can observe now, in the absence of a height tax. How would the world change in its presence? Markets in everything, folks.

2 comments:

Anonymous said...

True - but you might be missing an important point. When you tax labor, there is an incentive to not work, because not working = leisure, which has a positive benefit.

If you tax height, there really isn't an incentive to try to be shorter, because although you wouldn't have to pay higher taxes, you'd presumably also give up your increased earning ability, assuming the taller = higher income relationship is correct. I cannot think of many benefits to being "short" similar to those of consuming more leisure.

Justin M Ross said...

If you tax height, there really isn't an incentive to try to be shorter, because although you wouldn't have to pay higher taxes, you'd presumably also give up your increased earning ability, assuming the taller = higher income relationship is correct.

Three points to clarify:

1) People who opt out of the labor force (e.g. homemakers, retired, etc) would still have to pay the height tax. Unless the tax forces them into the labor market, the incentive effect remains.

2) On the causality...Except in a few obvious professions (NBA, modeling, etc), that relationship is not causal in that specific way. As I understand the causality story, taller people have greater brain capacity during their development. People who were tall for their age in high school but shorter later on in life have the same intelligence level as people who were tall at all points in time. Similarly, people who are only tall later in life are similar to people who have always been short for their age.

Therefore, changing your height in adulthood would not impact your earning potential, but still impact your taxes. It would be a good reason (as if you needed any more) to not try and stunt your child's growth, however.

3) Even if we forget point 2, if the reduction in income potential was less than the tax savings, you would still have the incentive to lose height.