Dynamic Incidence in a Two-Sector Growing Economy

Abstract

The aim in this paper is to provide a systematic approach to the long-run incidence analysis in a two-sector growth model. For this end, a long-run incidence model as close as possible to the standard short-run incidence model shall be built, and a method of conducting the comparative dynamic analysis which evaluates the long-run factor income distribution will be developed. In so doing, the following three steps shall be taken. First, the logical structure of the long-run incidence model is carefully explored to clarify the relationship between the long-run incidence and the short-run incidence. Second, previous work is extended to cover the long-run incidence effects of other taxes such as commodity or wage taxes. Third, concrete propositions on the long-run incidence are established comparable to those on the short-run incidence.