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How Big Should Government Be?

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  • Feldstein, Martin
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    Abstract

    Suggests that the deadweight burden caused by a tax rate increase depends not only on labor force participation response but also on other dimensions of labor supply (the forms in which compensation is paid; the forms of tax-favored consumption; and intertemporal allocation of consumption.) Recent econometric work implies that the deadweight burden caused by incremental taxation (the marginal excess burden) may exceed one dollar per dollar of revenue raised, making the cost of incremental government spending more than two dollars for each dollar of government spending.

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    Bibliographic Info

    Article provided by National Tax Association in its journal National Tax Journal.

    Volume (Year): 50 (1997)
    Issue (Month): 2 (June)
    Pages: 197-213

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    Handle: RePEc:ntj:journl:v:50:y:1997:i:no._2:p:197-213

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    1. Feldstein, Martin S, 1978. "The Welfare Cost of Capital Income Taxation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(2), pages S29-51, April.
    2. Auerbach, Alan J, 1995. "Tax Projections and the Budget: Lessons from the 1980's," American Economic Review, American Economic Association, American Economic Association, vol. 85(2), pages 165-69, May.
    3. Martin Feldstein & Andrew Samwick, 1998. "The Transition Path in Privatizing Social Security," NBER Chapters, National Bureau of Economic Research, Inc, in: Privatizing Social Security, pages 215-264 National Bureau of Economic Research, Inc.
    4. Martin Feldstein, 1995. "Tax Avoidance and the Deadweight Loss of the Income Tax," NBER Working Papers 5055, National Bureau of Economic Research, Inc.
    5. Stuart, Charles E, 1984. "Welfare Costs per Dollar of Additional Tax Revenue in the United States," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 352-62, June.
    6. Martin Feldstein, 1992. "The Effects of Tax-Based Saving Incentives on Government Revenue and National Saving," NBER Working Papers 4021, National Bureau of Economic Research, Inc.
    7. Lindsey, Lawrence B., 1987. "Individual taxpayer response to tax cuts: 1982-1984 : With implications for the revenue maximizing tax rate," Journal of Public Economics, Elsevier, Elsevier, vol. 33(2), pages 173-206, July.
    8. Joel Slemrod & Shlomo Yitzhaki, 1996. "The Costs of Taxation and the Marginal Efficiency Cost of Funds," IMF Staff Papers, Palgrave Macmillan, Palgrave Macmillan, vol. 43(1), pages 172-198, March.
    9. Browning, Edgar K, 1987. "On the Marginal Welfare Cost of Taxation," American Economic Review, American Economic Association, American Economic Association, vol. 77(1), pages 11-23, March.
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    Cited by:
    1. Slemrod, Joel & Yitzhaki, Shlomo, 2001. "Integrating Expenditure and Tax Decisions: The Marginal Cost of Funds and the Marginal Benefit of Projects," National Tax Journal, National Tax Association, National Tax Association, vol. 54(n. 2), pages 189-202, June.
    2. Parry, Ian W. H. & Bento, Antonio M., 2000. "Tax Deductions, Environmental Policy, and the "Double Dividend" Hypothesis," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 67-96, January.
    3. Will Martin & James E. Anderson, 2005. "Costs of Taxation and the Benefits of Public Goods: The Role of Income Effects," Boston College Working Papers in Economics, Boston College Department of Economics 617, Boston College Department of Economics.
    4. Massimo Florio & Sara Colautti, 2005. "A logistic growth theory of public expenditures: A study of five countries over 100 years," Public Choice, Springer, Springer, vol. 122(3), pages 355-393, March.
    5. Massimo Florio & Sara Colautti, 2001. "A logistic growth law for government expenditures: an explanatory analysis," Departmental Working Papers, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano 2001-13, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    6. Wendner, Ronald & Goulder, Lawrence H., 2008. "Status Effects, Public Goods Provision, and the Excess Burden," MPRA Paper 8260, University Library of Munich, Germany.
    7. European Commission, 2012. "Tax reforms in EU Member States - Tax policy challenges for economic growth and fiscal sustainability – 2012 Report," Taxation Papers, Directorate General Taxation and Customs Union, European Commission 34, Directorate General Taxation and Customs Union, European Commission.
    8. repec:cto:journl:v:24:y:2004:i:3:p: is not listed on IDEAS
    9. Parry, Ian, 2000. "Comparing the Marginal Excess Burden of Labor, Gasoline, Cigarette and Alcohol Taxes: An Application to the United Kingdom," Discussion Papers, Resources For the Future dp-00-33-rev, Resources For the Future.
    10. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association, National Tax Association, vol. 51(n. 4), pages 773-88, December.
    11. Mario Mariniello, 2013. "Should Variable Cost Aid to Attract Foreign Direct Investment be Banned? A European Perspective," Journal of Industry, Competition and Trade, Springer, Springer, vol. 13(2), pages 273-308, June.
    12. Hans Lind & Roland Granqvist, 2010. "A Note on the Concept of Excess Burden," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, Queensland University of Technology (QUT), School of Economics and Finance, vol. 40(1), pages 78-88, March.
    13. Hoel, Michael, 2008. "Environmental Taxes in an Economy with Distorting Taxes and a Heterogeneous Population," Memorandum, Oslo University, Department of Economics 04/2008, Oslo University, Department of Economics.
    14. Salvador Barrios & Jonathan Pycroft & Bert Saveyn, 2013. "The marginal cost of public funds in the EU: the case of labour versus green taxes," Taxation Papers, Directorate General Taxation and Customs Union, European Commission 35, Directorate General Taxation and Customs Union, European Commission.
    15. Richard M. bird, 2003. "Taxation in Latin America: Reflections on Sustainability and the Balance between Equity and Efficiency," International Tax Program Papers, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto 0306, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.

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