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Will the Real Excess Burden Please Stand Up? (Or, Seven Measures in Search of a Concept)

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  • Alan J. Auerbach
  • Harvey S. Rosen

Abstract

It is well understood that a tax which distorts relative prices generates a welfare cost or "excess burden" in addition to any associated transfer of resources, but there remains considerable controversy and confusion with respect to procedures for measuring this excess burden. The purpose of this paper is to clarify matters concerning what is one of the most basic concepts in welfare economics. We describe and evaluate a number of alternative conceptual experiments which might lie behind an excess burden calculation, showing how these notions can be represented graphically and algebraically and how they can be approximated numerically.

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File URL: http://www.nber.org/papers/w0495.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0495.

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Date of creation: Jun 1980
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Publication status: published as The Fiscal Behavior of State and Local Governments, Rosen, H., ed., Edward Elgar Publishing, 1997, pp. 301-322.
Handle: RePEc:nbr:nberwo:0495

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  1. Small, Kenneth A & Rosen, Harvey S, 1981. "Applied Welfare Economics with Discrete Choice Models," Econometrica, Econometric Society, vol. 49(1), pages 105-30, January.
  2. Rosen, Harvey S, 1978. "The Measurement of Excess Burden with Explicit Utility Functions," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages S121-35, April.
  3. Hause, John C, 1975. "The Theory of Welfare Cost Measurement," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1145-82, December.
  4. Wales, T J & Woodland, A D, 1976. "Estimation of Household Utility Functions and Labor Supply Response," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(2), pages 397-410, June.
  5. Kay, J. A., 1980. "The deadweight loss from a tax system," Journal of Public Economics, Elsevier, vol. 13(1), pages 111-119, February.
  6. Diamond, P. A. & McFadden, D. L., 1974. "Some uses of the expenditure function in public finance," Journal of Public Economics, Elsevier, vol. 3(1), pages 3-21, February.
  7. Willig, Robert D, 1976. "Consumer's Surplus without Apology," American Economic Review, American Economic Association, vol. 66(4), pages 589-97, September.
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Cited by:
  1. Don Fullerton, 1989. "If Labor is Inelastic, Are Taxes Still Distorting?," NBER Working Papers 2810, National Bureau of Economic Research, Inc.
  2. Nada Eissa & Henrik Jacobsen Kleven & Claus Thustrup Kreiner, 2004. "Evaluation of Four Tax Reforms in the United States: Labor Supply and Welfare Effects for Single Mothers," NBER Working Papers 10935, National Bureau of Economic Research, Inc.
  3. Kevin J. Mumford, 2007. "The Optimal Tax Treatment of Families with Children," Discussion Papers 06-020, Stanford Institute for Economic Policy Research.
  4. Driffill, E John & Rosen, Harvey S, 1983. "Taxation and Excess Burden: A Life Cycle Perspective," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 671-83, October.
  5. Blinder, Alan S & Rosen, Harvey S, 1985. "Notches," American Economic Review, American Economic Association, vol. 75(4), pages 736-47, September.
  6. Charles L. Ballard & Don Fullerton, 1992. "Distortionary Taxes and the Provision of Public Goods," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 117-131, Summer.
  7. Jerry A. Hausman, 1980. "Income and Payroll Tax Policy and Labor Supply," NBER Working Papers 0610, National Bureau of Economic Research, Inc.
  8. Alex Luiz Ferreira, 2007. "On the Transmission Mechanism of Monetary Constraints to the Real Side of the Economy," International Review of Applied Economics, Taylor & Francis Journals, vol. 21(1), pages 43-54.

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