Corporate Taxation and the Efficiency Gains of the 1986 Tax Reform Act
AbstractThe 1986 Tax Reform Act, while having little effect on the overall effective tax rate on U.S. capital income, did reduce significantly the difference in effective taxation of corporate and noncorporate capital within a number of U.S. industries. The Mutual Production Model developed in Gravelle and Kotlikoff (1989) can be used to study the efficiency gains from the reduction in corporate tax wedges within industries. Unlike the Harberger Model, the Mutual Production Model permits both corporate and noncorporate firms to produce the same goods and, therefore, to coexist within a given industry. This paper develops an 11 industry - 55 year dynamic life cycle version of the Mutual Production Model. We use this model to study the steady state efficiency gains associated with the new law. While we do not simulate the economy's transition path, our steady state welfare changes are those that arise from compensating transitional generations for the first order redistribution of income associated with the Tax Reform. We find that the 1986 Tax Reform law reduces excess burden by .85 percent of our model's economy's present value of consumption. This efficiency gain reflects the Tax Reform's reduction in corporate non-corporate tax wedges, particularly in those industries with significant non-corporate production. Measured as a flow the 1988 estimated efficiency gain from the Tax Reform Act is $31 billion.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3142.
Date of creation: Oct 1989
Date of revision:
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Gravelle, Jane G & Kotlikoff, Laurence J, 1995. "Corporate Taxation and the Efficiency Gains of the 1986 Tax Reform Act," Economic Theory, Springer, vol. 6(1), pages 51-81, June.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Meh, Césaire A., 2008. "Business risk, credit constraints, and corporate taxation," Journal of Economic Dynamics and Control, Elsevier, vol. 32(9), pages 2971-3008, September.
- Jonathan Skinner, 1990.
"The Dynamic Efficiency Cost of Not taxing Housing,"
NBER Working Papers
3454, National Bureau of Economic Research, Inc.
- Gravelle, Jane G., 1995. "The Corporate Income Tax: Economic Issues and Policy Options," National Tax Journal, National Tax Association, vol. 48(2), pages 267-77, June Cita.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.