Scottish economist who won the Nobel Prize for Economics in 1996, with Canadian-born US economist William Vickrey, for fundamental contributions to the theory of optimal taxation in conditions of asymmetric information: governments should like to use information about individuals for tax purposes which individuals may not choose to reveal.
It is an old insight in public finance that the ideal redistributive tax policy would consist entirely of what economists call ‘lump sum transfers’, which have no disincentive effects on economic behaviour and therefore leave consumption saving, labour supply, and portfolio choices the same as before. Unfortunately, it is almost impossible to think of an example of such neutral taxes and any government that would try to implement lump sum taxes would have to fall back on a second-best strategy of basing the tax system on some observable characteristic such as age or income. The problem of optimal taxation is to find the least efficiency distorting redistributive tax. This is the question that Mirrlees explored in a number of influential papers in the 1970s and 1980s, making some progress in delineating the properties of the optimal tax function.
After an MA in mathematics at the University of Edinburgh in 1957 and a mathematics tripos and PhD at the University of Cambridge in 1959 and 1963, Mirrlees spent a year in India for the Massachusetts Institute of Technology Center for International Studies. He joined Trinity College, Cambridge, as a lecturer and fellow in 1963. In 1969, he became a professor of economics and fellow of Nuffield College at Oxford University. He moved back to Cambridge in 1995 as professor of political economy (until 2003) and remains a fellow of Trinity College. Since 2002, he has been professor-at-large of the Chinese University of Hong Kong. He is also a distinguished professor at the University of Macau and laureate professor at Melbourne University in Australia. He was knighted in 1998.
Mirrlees has made significant contributions to cost-benefit analysis in developing countries, particularly with respect to the choice of ‘shadow’ or accounting prices in the evaluation of public prices. In the much-cited handbook Project Appraisal and Planning for Developing Countries (1974), Mirrlees and the English economist Ian Little recommended the use of world prices for adding up input costs as a substitute for distorted domestic prices.
His publications include Models of Economic Growth (1973; co-edited with N H Stern).