On the efficiency of equal sacrifice income tax schedules

•Derive efficiency tests for equal sacrifice schedules.•Derive formulae for marginal welfare weights that use only observables.•Calculate efficiency bounds and marginal welfare weights for equal sacrifice; schedules.•Show how non-separability affects properties of equal sacrifice schedule.•Assess whether equal sacrifice schedules are efficient for empirically relevant Government expenditures.

In an economy which primitives are exactly those in Mirrlees (1971), we investigate the efficiency of tax schedules derived under the equal sacrifice principle. For a given exogenous government consumption level we assess whether there is an alternative tax schedule that raises more revenue while delivering less utility to no one. For our preferred parametrizations, we find that inefficiency only arises at the top of the income distribution for marginal tax rates well above the ones we currently observe in most countries. We also recover the implicit marginal social weights associated with the equal sacrifice schedule and find them not to be monotonic in types for the environments we study.