Sage Journals: Discover world-class research

Abstract

The incidences of wage, income, interest, output, and expenditure taxes are examined in a dynamic general equilibrium growth model. It is shown that a flat-rate income tax and a general sales tax have the same incidence; if the production function is Cobb-Douglas (unit elasticity of substitution), both are borne entirely by labor income. Feldstein's finding that a proportional capital income tax is partly shifted onto labor income is shown to hold even when saving elasticities are zero. A proportional wage tax reduces after tax wage income by more than the tax, while increasing interest income, demonstrating that labor bears more than a 100% share of this tax's burden. These results are compared to the incidence results of static general equilibrium analysis. It is shown that the general equilibrium results hold in the long run only if the production elasticity of substitution is infinite.

Get full access to this article

View all access options for this article.

References

Atkinson

A. B.

(1969) The timescale of economic models: How long is the long run? Rev. of Econ. Studies 36 (April): 137–152.

Auerbach

A. J.

Kotlikoff

L. J.

(1983) National savings, economic welfare, and the structure of taxation, in Feldstein

(ed.), Behavioral Simulation Methods in Tax Policy Analysis. Chicago: Univ. of Chicago Press: 459–498.

Berndt

E. R.

(1976) Reconciling alternate estimates of the elasticity of substitution. Rev. of Economics and Statistics 58 (February): 59–68.

Browning

E. K.

(1978) The burden of taxation. J.P.E. 86 (August): 649–671.

Diamond

P. A.

(1965) National debt in a neoclassical growth model. A.E.R. 55 (December): 1126–1150.

Diamond

P. A.

(1970) Incidence of an interest income tax. J. of Econ. Theory (September): 211–224.

Feldstein

M. S.

(1974a) Incidence of a capital income tax in a growing economy with variable savings rates. Rev. of Econ. Studies 41 (October): 505–513.

Feldstein

M. S.

(1974b) Tax incidence in a growing economy with variable factor supply. Q.J.E. 87 (November): 551–573.

Fullerton

Shoven

J. B.

Whalley

(1983) Replacing the U.S. income tax with a progressive consumption tax. J. of Public Economics 20 (February): 3–23.

10.

Harberger

A. C.

(1962) The incidence of the corporate income tax. J.P.E. 70 (June): 215–240.

11.

Kotlikoff

L. J.

Summers

L. H.

(1979) Tax incidence in a life cycle model with variable labor supply. Q.J.E. 93 (November): 705–718

12.

McLure

C. E.

Jr. (1970) Tax incidence, macroeconomic policy, and absolute prices. Q.J.E. 84 (May): 254–267.

13.

Mieszkowski

P. M.

(1967) On the theory of tax incidence. J.P.E. 75 (June): 250–262.

14.

Pechman

J. A.

(1985) Who Paid the Taxes, 1966–85. Washington, DC: Brookings Institution.

15.

Summers

L. H.

(1981) Capital taxation and accumulation in a life cycle growth model. A.E.R. 71 (September): 533–544.

Invariant Resource Supply and Tax Incidence in a Lifecycle Growth Model

Abstract

Get full access to this article

References