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Corporate Tax Incidence and Inefficiency When Corporate and Noncorporate Goods Are Close Substitutes

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  • Gravelle, Jane G
  • Kotlikoff, Laurence J

Abstract

An important deficiency in Harberger's (1962) model of corporate income taxation is its inability to consider both corporate and noncorporate production of the same good. Within-industry substitution has potentially major implications for both the excess burden and incidence of the corporate tax. The authors analyze this within-industry substitution using a model in which each industry/sector contains corporate and noncorporate firms (with identical production functions) that produce goods that are close substitutes. The scope for considerable within-industry substitution of noncorporate for corporate capital leads to a very much larger excess burden than that in the Harberger model. Copyright 1993 by Oxford University Press.

Suggested Citation

  • Gravelle, Jane G & Kotlikoff, Laurence J, 1993. "Corporate Tax Incidence and Inefficiency When Corporate and Noncorporate Goods Are Close Substitutes," Economic Inquiry, Western Economic Association International, vol. 31(4), pages 501-516, October.
    • Handle: RePEc:oup:ecinqu:v:31:y:1993:i:4:p:501-16
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    Cited by:

    1. Roger H. Gordon & Joel Slemrod, 1998. "Are "Real" Responses to Taxes Simply Income Shifting Between Corporate and Personal Tax Bases?," NBER Working Papers 6576, National Bureau of Economic Research, Inc.
    2. Alison Felix, 2007. "Passing the burden: corporate tax incidence in open economies," Regional Research Working Paper RRWP 07-01, Federal Reserve Bank of Kansas City.
    3. Goolsbee, Austan, 2004. "The impact of the corporate income tax: evidence from state organizational form data," Journal of Public Economics, Elsevier, vol. 88(11), pages 2283-2299, September.
    4. Goolsbee, Austan, 1998. "Taxes, organizational form, and the deadweight loss of the corporate income tax," Journal of Public Economics, Elsevier, vol. 69(1), pages 143-152, July.
    5. R. Alison Felix, 2007. "Passing the Burden: Corporate Tax Incidence in Open Economies," LIS Working papers 468, LIS Cross-National Data Center in Luxembourg.
    6. Kenneth J. McKenzie & Ergete Ferede, 2017. "Who Pays the Corporate Tax?: Insights from the Literature and Evidence for Canadian Provinces," SPP Research Papers, The School of Public Policy, University of Calgary, vol. 10(6), April.
    7. Xavier Giroud & Joshua Rauh, 2017. "State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data," Working Papers 17-02, Center for Economic Studies, U.S. Census Bureau.
    8. Xavier Giroud & Joshua Rauh, 2015. "State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data," NBER Working Papers 21534, National Bureau of Economic Research, Inc.
    9. Michael Stimmelmayr & Doina Radulescu, 2006. "Does Incorporation Matter? Quantifying the Welfare Loss of Non-uniform Taxation Across," EcoMod2006 272100088, EcoMod.
    10. Gordon, Roger H. & MacKie-Mason, Jeffrey K., 1994. "Tax distortions to the choice of organizational form," Journal of Public Economics, Elsevier, vol. 55(2), pages 279-306, October.
    11. Doina Radulescu & Michael Stimmelmayr, 2010. "The welfare loss from differential taxation of sectors in Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(2), pages 193-215, April.
    12. Xavier Giroud & Joshua D. Rauh, 2016. "State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data," Economics Working Papers 16103, Hoover Institution, Stanford University.
    13. 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.
    14. Elschner, Christina, 2013. "Special tax regimes and the choice of organizational form: Evidence from the European Tonnage Taxes," Journal of Public Economics, Elsevier, vol. 97(C), pages 206-216.
    15. Gravelle, Jane G., 1995. "The Corporate Income Tax: Economic Issues and Policy Options," National Tax Journal, National Tax Association;National Tax Journal, vol. 48(2), pages 267-277, June.
    16. R. Alison Felix & James R. Hines, 2022. "Corporate taxes and union wages in the United States," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(6), pages 1450-1494, December.
    17. Marianne F. Johnson, 2003. "Differential Taxation of for-Profit and Nonprofit Firms: A Computational General Equilibrium Approach," Public Finance Review, , vol. 31(6), pages 623-647, November.
    18. Doina Radulescu & Michael Stimmelmayr & Doina Maria Radulescu, 2006. "Does Incorporation Matter? Quantifying the Welfare Loss of Non-Uniform Taxation across Sectors," ifo Working Paper Series 26, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    19. Cole, Rebel, 2011. "How do firms choose legal form of organization?," MPRA Paper 32591, University Library of Munich, Germany.

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