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The Influence of Real Income Changes on the Incidence of a Partial Factor Tax

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  • J. Gregory Ballentine

    (Wayne State University)

  • Ibrahim Eris

    (Instituto de Pesquisas Economicas São Paulo, Brazil)

Abstract

Imposition of a partial factor tax (the most common example of which is a corporation income tax) will impose an excess burden on society. That excess burden implies a reduction in consumers' real income above and beyond the tax transfer to the government. The incidence of the tax depends, in part, on the way consumers react to that real income loss. In this paper we show that omission of this effect, as occurs in the well-known Harberger model, will bias results toward the conclusion that capitalists bear the tax burden when the corporate sector is labor intensive.

Suggested Citation

  • J. Gregory Ballentine & Ibrahim Eris, 1978. "The Influence of Real Income Changes on the Incidence of a Partial Factor Tax," Public Finance Review, , vol. 6(4), pages 439-453, October.
    • Handle: RePEc:sae:pubfin:v:6:y:1978:i:4:p:439-453
    DOI: 10.1177/109114217800600404
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    References listed on IDEAS

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    1. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70(3), pages 215-215.
    2. Ballentine, J Gregory & Eris, Ibrahim, 1975. "On the General Equilibrium Analysis of Tax Incidence," Journal of Political Economy, University of Chicago Press, vol. 83(3), pages 633-644, June.
    3. 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, vol. 1(3-4), pages 281-321, November.
    4. Jones, Ronald W, 1971. "Distortions in Factor Markets and the General Equilibrium Model of Production," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 437-459, May-June.
    5. Vandendorpe, Adolf L. & Friedlaender, Ann F., 1976. "Differential incidence in the presence of initial distorting taxes," Journal of Public Economics, Elsevier, vol. 6(3), pages 205-229, October.
    6. McLure, Charles Jr., 1975. "General equilibrium incidence analysis : The Harberger model after ten years," Journal of Public Economics, Elsevier, vol. 4(2), pages 125-161, February.
    7. Peter M. Mieszkowski, 1967. "On the Theory of Tax Incidence," Journal of Political Economy, University of Chicago Press, vol. 75(3), pages 250-250.
    8. Stephen P. Magee, 1971. "Factor Market Distortions, Production, Distribution, and the Pure Theory of International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 85(4), pages 623-643.
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