Taxation and Excess Burden: A Life Cycle Perspective
A lifetime perspective is appropriate in assessing the welfare implications of government tax policies. Although a number of attempts have been made to ex- amine the excess burden of taxation in life-cycle models, these have tended to ignore the role of human capital accumulation and/or the leisure-income choice. In this paper, we do numerical simulations with a model that takes both of these phenomena into account. We find that under reasonable assumptions, the failure to take into account distortions of human capital decisions produces substantial underestimates of the excess burden of income taxation. In addition, allowing for the endogeneity of human capital increases the efficiency of a personal consumption tax relative to that of an equal yield income tax.
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Volume (Year): 24 (1983)
Issue (Month): 3 (October)
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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