We’ve just seen how economic analysis can be used to determine the inefficiency caused by a tax. It’s clear that, other things equal, policy makers should choose a tax that creates less inefficiency over a tax that creates more. But that guideline still leaves policy makers with wide discretion in choosing what to tax and, consequently, who bears the burden of the tax. How should they exercise this discretion?

One answer is that policy makers should make the tax system fair. But what exactly does fairness mean? Moreover, however you define fairness, how should policy makers balance considerations of fairness versus considerations of efficiency?