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

Fullerton, Don; Henderson, Yolanda K.

doi:10.3386/w1905

Cited by 16 publications

(10 citation statements)

References 14 publications

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“…Two recent responses to this critique of the Harberger model are Gravelle and Kotlikoff [1989] and Fullerton and Henderson [1989]. Fullerton and Henderson simply introduce two capital inputs-cor-porate capital and noncorporate capitalin the production function of each industry.…”

Section: Introductionmentioning

confidence: 99%

Corporate Tax Incidence and Inefficiency When Corporate and Noncorporate Goods Are Close Substitutes

Gravelle¹,

Kotlikoff

1993

Economic Inquiry

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An important deficiency in Harberger's [1962] model of corporate income taxation is its inability to consider both corporate and noncorporate production of the same good. Within‐industry substitution has potentially major implications for both the excess burden and incidence of the corporate tax. We analyze this within‐industry substitution using a model in which each industry/sector contains corporate and noncorporate firms (with identical production functions) which produce goods that are close substitutes. The scope for considerable within‐industry substitution of noncorporate for corporate capital leads to a very much larger excess burden than that in the Harberger model.

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Section: Introductionmentioning

confidence: 99%

Corporate Tax Incidence and Inefficiency When Corporate and Noncorporate Goods Are Close Substitutes

Gravelle¹,

Kotlikoff

1993

Economic Inquiry

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“…Papers that use marginal effective tax rates to measure capital misallocations include Galper, Lucke and Toder (1988), Henderson (1989), and(llravelle (1989).…”

mentioning

confidence: 99%

Tax evasion and the allocation of capital

Fullerton¹,

Karayannis²

1994

Journal of Public Economics

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“…Second, the model of marginal effective tax rates for each asset in the corporate and noncorporate sectors is taken from Fullerton and Henderson (1984). Third, detailed production functions allow endogenous choices among assets and sectors, from Fullerton and Henderson (1986). Finally, the model allows the tax treatment of old capital to differ from that of new capital.…”

Section: The Modelmentioning

confidence: 99%

“…The noncorporate business sector exhibits similar interasset variations. For further details, see Fullerton and Henderson (1986).…”

Section: A Effective Tax Rates In the Baselinementioning

confidence: 99%

The Marginal Excess Burden of Different Capital Tax Instruments

Fullerton¹,

Henderson²

1987

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

Cited by 16 publications

References 14 publications

Corporate Tax Incidence and Inefficiency When Corporate and Noncorporate Goods Are Close Substitutes

Corporate Tax Incidence and Inefficiency When Corporate and Noncorporate Goods Are Close Substitutes

Tax evasion and the allocation of capital

The Marginal Excess Burden of Different Capital Tax Instruments

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