A Disaggregate Equilibrium Model of the Tax Distortions among Assets, Sectors, and Industries

Abstract

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.

Macroeconomics and housing: a review of the literature

“…11 Dimasi (1987) solves a computable, spatial general equilibrium model; and finds that eliminating the differential tax treatment on capital and land can lead to a significant social welfare gain. 12 Fullerton and Henderson (1989) also show that general equilibrium taxation induced distortions among industries are smaller than those across assets. 13 Other general equilibrium models find that tax policies which favor the housing sector will cause a significantly negative impact on both the aggregate income and the housing sector, as the policy distorts the accumulation of physical capital which is essential for goods production and economic growth.…”

The Marginal Excess Burden of Different Capital Tax Instruments

“…Second, the model of marginal effective tax rates for each asset in each sector is from Fullerton and Henderson (1984). Third, production functions allow endogenous choices among assets and sectors, from Fullerton and Henderson (1989). Finally, we allow the tax treatment of old capital to differ from that of new capital.…”

Measurement and Allocation of Capital Inputs With Taxes: A Sensitivity Analysis for OECD Countries

“…As in Fullerton and Henderson (), I consider the unitary social cost of taxing asset i in industry j as the rental price of capital net of the replacement rate: The capital stock can be redefined such that the relative price of the assets is normalized to 1, or p ij = 1. The setup is again the standard one where each industry j produces using a Cobb–Douglas production technology in each type of capital (indexed with i ) and labor: with α j = Σ i α ij .…”