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A Reexamination of Tax Distortions in General Equilibrium Models

  • Don Fullerton
  • Roger H. Gordon

General equilibrium models have recently been used to simulate the effects of many proposed tax changes. However, in modeling the effects of the government on the economy, these models have assumed for simplicity that marginal tax rates equal the observed average tax rates, and that marginal benefit rates are zero. The main purpose of this paper is to derive improved estimates of various marginal tax and benefit rates. Most importantly, we include in the model recent theories concerning the effects of combined corporate and personal taxes on corporate financial and investment decisions. The conclusions previously derived concerning the effects of corporate tax integration are then reexamined in light of the proposed changes.

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File URL: http://www.nber.org/papers/w0673.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0673.

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Date of creation: May 1981
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Publication status: published as Fullerton, Don and Gordon, Roger H. "A Reexamination of Tax Distortions in General Equilibrium Models." Behavioral Simulation Methods in Tax Policy Analysis, edited by Martin Feldstein. Chicago: University of Chicago Press, (1983), pp. 369-462.
Handle: RePEc:nbr:nberwo:0673
Note: PE
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  1. Mervyn A. King & Don Fullerton, 1984. "The United States," NBER Chapters, in: The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany, pages 193-267 National Bureau of Economic Research, Inc.
  2. Gordon, Roger H, 1984. "Inflation, Taxation, and Corporate Behavior," The Quarterly Journal of Economics, MIT Press, vol. 99(2), pages 312-27, May.
  3. Roger H. Gordon & David F. Bradford, 1980. "Taxation and the stock market valuation of capital gains and dividends : Theory and emphirical results," NBER Chapters, in: Econometric Studies in Public Finance, pages 109-136 National Bureau of Economic Research, Inc.
  4. Martin Feldstein & Lawrence H. Summers, 1979. "Inflation and the Taxation of Capital Income in the Corporate Sector," NBER Working Papers 0312, National Bureau of Economic Research, Inc.
  5. McGuire, Martin, 1974. "Group Segregation and Optimal Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 112-32, Jan.-Feb..
  6. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
  7. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May.
  8. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  9. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215.
  10. King, Mervyn A, 1974. "Taxation and the Cost of Capital," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 21-35, January.
  11. Roger H. Gordon & Burton G. Malkiel, 1980. "Taxation and Corporation Finance," NBER Working Papers 0576, National Bureau of Economic Research, Inc.
  12. Robert M. Coen, 1980. "Alternative Measures of Capital and Its Rate of Return in United States Manufacturing," NBER Chapters, in: The Measurement of Capital, pages 121-152 National Bureau of Economic Research, Inc.
  13. Hamilton, Bruce W, 1976. "Capitalization of Intrajurisdictional Differences in Local Tax Prices," American Economic Review, American Economic Association, vol. 66(5), pages 743-53, December.
  14. Shoven, John B, 1976. "The Incidence and Efficiency Effects of Taxes on Income from Capital," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1261-83, December.
  15. Alan S. Blinder & Roger H. Gordon & Donald E. Wise, 1980. "Reconsidering the Work Disincentive Effects of Social Security," NBER Working Papers 0562, National Bureau of Economic Research, Inc.
  16. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "General Equilibrium Analysis of Tax Policies," NBER Chapters, in: A General Equilibrium Model for Tax Policy Evaluation, pages 6-24 National Bureau of Economic Research, Inc.
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