IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

A note on taxes, prices, wages, and welfare in general equilibirium models:

Listed author(s):
  • Robinson, Sherman
  • Thierfelder, Karen

Changes in real wages are often used to measure welfare changes. There is a problem, however, in interpreting measures of changes in factor returns when analyzing the impact of changes in taxes — such as tariffs and indirect taxes — that operate as wedges in product and factor markets versus direct taxes that do not work through the price system. One must account for both how the tax is collected and where the tax revenue goes. We sort out how a shift in tax structure will affect the real wage in a model which isolates the price, wage, revenue, and welfare effects. We start from a simple general equilibrium model which accounts for all income and expenditure flows in the economy and includes both traded and domestic goods. We analyze the impact of changes in indirect taxes and tariffs on prices and factor income and demonstrate the pitfalls of using real factor returns as a welfare indicator. There is a transfer effect on factor returns arising from any shift between indirect and direct taxes, regardless of any efficiency effects. Next, we add explicit factor markets to the model and describe the implications for income distribution in an extension of the Jones trade model. We find that the transfer effect dampens the magnification effect of a price change on factor returns, but does not reverse the Stolper-Samuelson results.

If 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.

File URL:
Download Restriction: no

Paper provided by International Food Policy Research Institute (IFPRI) in its series TMD discussion papers with number 39.

in new window

Date of creation: 1999
Handle: RePEc:fpr:tmddps:39
Contact details of provider: Postal:
1201 Eye Street, NW, Washington, DC 20005-3915

Phone: 202-862-5600
Fax: 202-467-4439
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fpr:tmddps:39. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.