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Tax Incidence in Dynamic Economies with Externalities and Endogenous Labor Supply

Author

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  • Amano, Daisuke
  • Itaya, Jun-ichi
  • Mino, Kazuo

Abstract

This paper examines the long-run incidence of factor income taxes and expenditure taxes in an infinitely lived representative agent growth model which allows both for production externalities and for endogenous labor supply. The novelty of this paper is its investigating of how the long-run incidence of taxes is affected by indeterminacy of equilibria that is caused mainly by nonseparable preferences between consumption and leisure. We show that the effects of the taxes on steady state welfare as well as the steady state levels of consumption, capital, and employment are all negative regardless of whether a steady state is determinate or indeterminate in an exogenous growth model. By contrast, in an endogenous growth model those distortionary taxes are growth and welfare enhancing in both a determinate steady state featuring the unconventional slope of the labor supply curve and an indeterminate steady state featuring its conventional slope. (JEL classifications: H41, F13, D62)

Suggested Citation

  • Amano, Daisuke & Itaya, Jun-ichi & Mino, Kazuo, 2007. "Tax Incidence in Dynamic Economies with Externalities and Endogenous Labor Supply," Discussion paper series. A 192, Graduate School of Economics and Business Administration, Hokkaido University.
    • Handle: RePEc:hok:dpaper:192
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    File URL: http://hdl.handle.net/2115/30174
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    File URL: https://eprints.lib.hokudai.ac.jp/dspace/bitstream/2115/30174/1/DPA192.pdf
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    Citations

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    Cited by:

    1. Long, Xin & Pelloni, Alessandra, 2017. "Factor income taxation in a horizontal innovation model," Journal of Public Economics, Elsevier, vol. 154(C), pages 137-159.
    2. Long Xin & Pelloni Alessandra, 2011. "Welfare improving taxation on savings in a growth model," wp.comunite 0091, Department of Communication, University of Teramo.
    3. Daisuke Amano & Jun-ichi Itaya & Kazuo Mino, 2014. "Trade Structure and Growth Effects of Taxation in a Two-Country World," CESifo Working Paper Series 4882, CESifo.

    More about this item

    Keywords

    Tax incidence; externalities; indeterminacy and endogenous labor supply; H41; F13; D62;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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