Summary on Atkinson’s “The Mirrlees Review and the State of Public Economics”

The Mirlees Review principal objective was to analyze UK tax system and
identify the ways to do it more efficient without decreasing the amount of revenue they
usually collected.

One of the most important positive elements of Mirlees review is that it relies on
empirical findings as a more accurate way to do the analysis. This review reflects the new
trends on public economics and public finance studies that nowadays use more micro-
data and micro-econometric techniques.
Other positive element of the review is that it is presented as a study with a good external
validity. This means that all the findings should be able to be extrapolated to other
countries besides UK area. However, the agenda they stablish relies on the specific
circumstances of that country. They state that a better tax system should include
progressive income tax, release the normal return to savings with a clear rate structure,
a single integrated transfer system for those that have higher needs (economical,
physical, etc.), a uniform valur-added tax (VAT) (additional taxes on inelastic and “bad
to health” goods such as tobacco, alcohol, road congestion), a lifetime wealth transfer
tax, and a single rate of corporation tax (except the “normal return on investment”).
Another positive element is that the author tries to recognize most of the limitations of
the study and mentions them in order to guide the policy makers. This is important
because policy makers trust what is mentioned on this kind of studies. Also, if an approach
is presented as the panacea of a problem, then something could be wrong in the analysis
because saying that everything is correct and perfect in economic analysis and especially
public economics, could reflect there is lack of a deep examination and criticism of what
is being done.
The review considers that tax system as “a system” (just like the name states). By this
they mean they do not consider each tax as isolated from the other taxes. They consider
all as one big “pile”. This can be considered a positive aspect because it allows to achieve
a better relation between efficiency and equity which are the two pillars of the system that
we want to optimize.
 The review works with an explicit objective function and constraints to provide
the optimal tax approach. It presents three main limitations: it assumes there is n Arrow-
Debreu economy, reflects economic change insufficiently, and relies too much on
utilitarianism. Also the validity of their arguments is partially uncertain as one of the
critics to the methodology are the assumptions they make (as usually happens in
economics). For example, to make their analysis they assume that the food retailing in
UK is a perfect competition while it really is a monopolistic competition. Even though
Mirrlee mentions that, he does not go deeper and ignores the topic of the degree of market
competition, which is relevant. Another assumption they make is in the case of the
calculation of the top tax rate, where they assume that there are no interdependencies
between incomes of different people. Also, in the calculation the reported standard error
implies a high confidence interval for a too wide range of the revenue maximizing tax
rate. Another assumption made is one that implies that context does not matter. There is
a weak analysis between outcome and process. The outcomes are in social welfare
function, but processes are more often in debates about taxation. The review when
integrating different taxes usually consider the process but not the outcomes. Also, when
considering the outcomes, it should be noted that there are different criteria to evaluate
them. All these assumptions could have been improved if they had relied in other fields
of economics.

The Mirrlees Review is a landmark for public finance and public economics. It presents
a better approach for tax analysis, though it also reflects there is a still “a lot to do” in the
field of public economics as it is not yet well integrated with other fields of economics,
as desirable.