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the Tax Distortions Industries This paper encompasses multiple sources of inefficiency introduced by the U.S. tax system into a single general equilibrium model. Using disaggregate calculations of user cost, we measure interasset distortions from the differential taxation of many types of assets. Simultaneously, we model the intersectoral distortions from the differential treatment of the corporate sector, noncorporate sector, and owner-occupied housing. Industries in the model have different uses of assets and degrees of incorporation. Results indicate that distortions between sectors are much smaller than those of the Harberger model. Distortions among industries are also much smaller than those in models using average effective tax rates. Distortions among assets are larger, but the total of all these welfare costs is still below one percent of income.

This paper represents part of a larger ongoing project to build and use a numerical general equilibrium model of the U.S. tax system. Charles Ballard, Charles Becker, Larry Dildine, Hudson Milner, John Shoven, and John Whalley have not only participated in the construction of this model, but have also made substantial contributions to this paper. We are also grateful for helpful suggestions and data from Barbara Fraumeni, Jane Gravelle, Charles Hulten, Dale Jorgenson, and Martin Sullivan. We are grateful to Thomas Kronmiller for research assistance, to the Treasury Department's Office of Tax Analysis for financial assistance, and to the National Science Foundation for financial assistance under Grant No. SES80254O4. Any opinions, findings, and conclusions expressed in this publication are those of the authors and do not necessarily reflect the views of the Office of Tax Analysis, the NEER, or the National Science Foundation. The research reported here is part of the NBER's research program in Taxation and project in Capital Formation. NBER Working Paper #828 December 1981 Long Run Effects of the Accelerated Cost Recovery System AB STRACTNuch of the debate surrounding the enactment of President Reagan's tax plan was concerned with the short rim effects of macroeconomic stimulation. Now that the Economic Recovery Tax Act of 1981 has become law, it is appropriate to look again at the long run effect of these tax cuts. This paper measures, for 37 different assets and for 18 different industries, the reduction in effective corporate tax rates that result from the acceleration of depreciation allowances and the expansion of the investment tax credit. It also uses a detailed dynamic general equilibrium model of the U.S. economy to simulate the effects of the new Accelerated Cost Recovery System (ACRS) on revenues, investment, long run growth, and capital allocation among industries. 1e find significant welfare gains from ACRS, but we find larger welfare gains from alternative plans that were not adopted.

Marginal excess burden, defined as the change in deadweight loss for an additional dollar of tax revenue, has been measured for labor taxes, output taxes, and capital taxes generally. This paper points out that there is no well-defined way to raise capital taxes in general, because the taxation of income from capital depends on many different policy instruments including the statutory corporate income tax rate, the investment tax credit rate, depreciation lifetimes, declining balance rates for depreciation allowances, and personal tax rates on noncorporate income, interest receipts, dividends, and capital gains. Marginal excess burden is measured for each of these different capital tax instruments, using a general equilibrium model that encompasses distortions in the allocation of real resources over time, among industries, between the corporate and noncorporate sectors, and among diverse types of equipment, structures, inventories, and land.Although numerical results are sensitive to specifications for key substitution elasticity parameters, important qualitative results are not. We find that an increase in the corporate rate has the highest marginal excess burden, because it distorts intersectoral and interasset decisions as well as intertemporal decisions. At the other extreme, an investment tax credit reduction has negative marginal excess burden because it raises revenue while reducing interasset distortions more than it Increases intertemporal distortions. In general, we find that marginal excess burdens of different capital tax instruments vary significantly. They can be more or less than the marginal excess burden of the payroll tax or the progressive personal income tax.A substantial literature since Arnold Harberger (1962, 1966) has been devoted to measuring the total excess burden of different major tax instruments.1 Economic policy, however, rarely contemplates the wholesale replacement of entire tax systems. For this reason, a more recent literature has emphasized measures of "marginal excess burden," the increment to total welfare cost associated with one dollar of additional revenue from each tax source.2 The concept and measurement of marginal excess burden are important in two respects. First, the marginal benefits of a properly designed public project should cover all social costs, including the marginal dollar expenditure plus the marginal excess burden.3 Second, for a fixed level of expenditures, the overall efficiency of the tax system can be improved by relying less on taxes with high marginal excess burden and more on taxes with low marginal excess burden. The present paper contributes by providing new measures of marginal excess burden for a variety of capital tax instruments in the U.S. and by comparing them to the marginal excess burdens for other categories of taxation. He find substantial variation in the results for different components of capital taxation, including some examples of marginal excess benefit rather than burden. I.

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