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A General Equilibrium Model of Taxation That Uses Micro-Unit Data: Withan Application to the Impact of Instituting a Flat-Rate Income Tax

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  • Joel Slemrod

Abstract

This paper develops a methodology in integrating the information from a micro-unit data file of tax returns into the framework of a general equilibrium model of taxation with endogenous financial behavior. It discusses how the available information on capital income flows can be used to impute portfolios to households, and how these portfolios and the other observed characteristics of the households can be made consistent with expected utility maximization. In order to illustrate the value of this methodology, it is applied to a study of the general equilibrium impact of instituting a flat-rate income tax system. The analysis reveals that there would be substantial changes in the pattern of rates of return and the distribution of asset ownership.The sectoral allocation of capital does not, though, change substantially. The micro-unit data base shows that, in general, lower-income households are worse off and the higher-income households are better off, although there is substantial dispersion of welfare change within income groups. Because these results rest on a very simple model of the economy and a particular data imputation procedure and parameterization, they should not be taken literally as a guide to policy decisions. Nevertheless, they do indicate that substantial insight can be provided by integrating micro-unit data with general equilibrium tax modeling.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1461.

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Date of creation: Sep 1984
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Publication status: published as Slemrod, Joel. "A General Equilibrium Model of Taxation the Uses Micro-Unit Data: With An Application to the Impact of Instituting a Flat-Rate Income Tax," New Development in Applied General Equilibrium Analysis, ed. by J. Piggott and J. Whalley. Cambridge: Cambridge University Press, 1985.
Handle: RePEc:nbr:nberwo:1461

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  1. Patric H. Hendershott & Joel Slemrod, 1982. "Taxes and the User Cost of Capital for Owner-Occupied Housing," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 10(4), pages 375-393.
  2. Mervyn A. King, 1983. "The Distribution of Gains and Losses from Changes in the Tax Treatment of Housing," NBER Chapters, in: Behavioral Simulation Methods in Tax Policy Analysis, pages 109-138 National Bureau of Economic Research, Inc.
  3. Joel B. Slemrod, 1983. "A General Equilibrium Model of Taxation with Endogenous Financial Behavior," NBER Chapters, in: Behavioral Simulation Methods in Tax Policy Analysis, pages 427-458 National Bureau of Economic Research, Inc.
  4. Don Fullerton & Yolanda K. Henderson & John B. Shoven, 1982. "A Comparison of Methodologies in Empirical General Equilibrium Models of Taxation," NBER Working Papers 0911, National Bureau of Economic Research, Inc.
  5. Harvey Galper & Eric Toder, 1984. "Transfer Elements in the Taxation of Income from Capital," NBER Chapters, in: Economic Transfers in the United States, pages 87-138 National Bureau of Economic Research, Inc.
  6. Gordon, Roger H & Slemrod, Joel, 1983. " A General Equilibrium Simulation Study of Subsidies to Municipal Expenditures," Journal of Finance, American Finance Association, American Finance Association, vol. 38(2), pages 585-94, May.
  7. Mervyn A. King, 1981. "Welfare Analysis of Tax Reforms Using Household Data," NBER Technical Working Papers 0016, National Bureau of Economic Research, Inc.
  8. Shoven, John B. & Whalley, John, 1972. "A general equilibrium calculation of the effects of differential taxation of income from capital in the U.S," Journal of Public Economics, Elsevier, Elsevier, vol. 1(3-4), pages 281-321, November.
  9. Shoven, John B, 1976. "The Incidence and Efficiency Effects of Taxes on Income from Capital," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(6), pages 1261-83, December.
  10. Joel Slemrod, 1982. "Tax Effects on the Allocation of Capital Among Sectors and Among Individuals: A Portfolio Approach," NBER Working Papers 0951, National Bureau of Economic Research, Inc.
  11. Rosen, Harvey S., 1979. "Owner occupied housing and the federal income tax: Estimates and simulations," Journal of Urban Economics, Elsevier, vol. 6(2), pages 247-266, April.
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Cited by:
  1. James Berkovec & Don Fullerton, 1993. "A General Equilibrium Model of Housing, Taxes, and Portfolio Choice," NBER Working Papers 3505, National Bureau of Economic Research, Inc.
  2. Martin Feldstein, 1987. "Imputing Corporate Tax Liabilities to Individual Taxpayers," NBER Working Papers 2349, National Bureau of Economic Research, Inc.
  3. Peichl, Andreas, 2005. "Die Evaluation von Steuerreformen durch Simulationsmodelle," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 05-1, University of Cologne, FiFo Institute for Public Economics.

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