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A Reexamination of Tax Distortions in General Equilibrium Models

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  • Don Fullerton
  • Roger H. Gordon

Abstract

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.

Suggested Citation

  • Don Fullerton & Roger H. Gordon, 1981. "A Reexamination of Tax Distortions in General Equilibrium Models," NBER Working Papers 0673, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0673
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    References listed on IDEAS

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    1. 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.
    2. Hamilton, Bruce W, 1976. "Capitalization of Intrajurisdictional Differences in Local Tax Prices," American Economic Review, American Economic Association, vol. 66(5), pages 743-753, December.
    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. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215-215.
    5. Roger H. Gordon & Burton G. Malkiel, 1980. "Taxation and Corporation Finance," NBER Working Papers 0576, National Bureau of Economic Research, Inc.
    6. McGuire, Martin, 1974. "Group Segregation and Optimal Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 112-132, Jan.-Feb..
    7. Roger H. Gordon, 1984. "Inflation, Taxation, and Corporate Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 99(2), pages 313-327.
    8. 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 1261-1283, December.
    9. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    10. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    11. 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.
    12. Martin Feldstein & Lawrence Summers, 1983. "Inflation and the Taxation of Capital Income in the Corporate Sector," NBER Chapters,in: Inflation, Tax Rules, and Capital Formation, pages 116-152 National Bureau of Economic Research, Inc.
    13. Mervyn A. King, 1974. "Taxation and the Cost of Capital," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 21-35.
    14. Browning, Edgar K, 1978. "The Burden of Taxation," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 649-671, August.
    15. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-275, May.
    16. 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.
    17. 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.
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    Cited by:

    1. Cooley, Thomas F. & Greenwood, Jeremy & Yorukoglu, Mehmet, 1997. "The replacement problem," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 457-499, December.
    2. Don Fullerton, 1983. "Which Effective Tax Rate?," NBER Working Papers 1123, National Bureau of Economic Research, Inc.
    3. Lawrence B. Lindsey, 1985. "Taxpayer Behavior and the Distribution of the 1982 Tax Cut," NBER Working Papers 1760, National Bureau of Economic Research, Inc.
    4. Gordon, Roger H & Wilson, John Douglas, 1989. "Measuring the Efficiency Cost of Taxing Risky Capital Income," American Economic Review, American Economic Association, vol. 79(3), pages 427-439, June.
    5. Fullerton, Don & Henderson, Yolanda Kodrzycki, 1989. "A Disaggregate Equilibrium Model of the Tax Distortions among Assets, Sectors, and Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 391-413, May.
    6. Lawrence B. Lindsey, 1985. "Estimating the Revenue Maximizing Top Personal Tax Rate," NBER Working Papers 1761, National Bureau of Economic Research, Inc.
    7. Roger H. Gordon, 1981. "Taxation of Corporate Capital Income: Tax Revenues vs. Tax Distortions," NBER Working Papers 0687, National Bureau of Economic Research, Inc.
    8. Marco Bassetto, 2006. "Politics and Efficiency of Separating Capital and Ordinary Government Budgets," The Quarterly Journal of Economics, Oxford University Press, vol. 121(4), pages 1167-1210.
    9. Roger H. Gordon & John D. Wilson, 1984. "An Examination of Multijurisdictional Corporate Income Taxes Under Formula Apportionment," NBER Working Papers 1369, National Bureau of Economic Research, Inc.
    10. David F. Bradford & Charles Stuart, 1986. "Issues in the Measurement and Interpretation of Effective Tax Rates," NBER Working Papers 1975, National Bureau of Economic Research, Inc.
    11. Lawrence B. Lindsey, 1986. "Individual Taxpayer Response to Tax Cuts 1982-1984 with Implications forthe Revenue Maximizing Tax Rate," NBER Working Papers 2069, National Bureau of Economic Research, Inc.
    12. Greenwood, Jeremy & Huffman, Gregory W., 1991. "Tax analysis in a real-business-cycle model : On measuring Harberger triangles and Okun gaps," Journal of Monetary Economics, Elsevier, vol. 27(2), pages 167-190, April.
    13. David F. Bradford & Don Fullerton, 1981. "Pitfalls in the Construction and Use of Effective Tax Rates," NBER Working Papers 0688, National Bureau of Economic Research, Inc.
    14. Christophe Chamley & Douglas Downing, 1981. "Efficient Stationary Taxation and Intertemporal General Equilibrium," Cowles Foundation Discussion Papers 591, Cowles Foundation for Research in Economics, Yale University.
    15. Roger H. Gordon & James R. Hines, Jr. & Lawrence H. Summers, 1987. "Notes on the Tax Treatment of Structures," NBER Chapters,in: The Effects of Taxation on Capital Accumulation, pages 223-258 National Bureau of Economic Research, Inc.
    16. Gordon, Roger H. & Li, Wei, 2003. "Government as a discriminating monopolist in the financial market: the case of China," Journal of Public Economics, Elsevier, vol. 87(2), pages 283-312, February.
    17. Lawrence H. Summers, 1987. "Should Tax Reform Level the Playing Field?," NBER Working Papers 2132, National Bureau of Economic Research, Inc.

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