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A Disaggregate Equilibrium Model of the Tax Distortions Among Assets, Sectors, and Industries

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  • Don Fullerton
  • Yolanda K. Henderson

Abstract

This paper encompasses multiple sources of inefficiency introduced by the U.S. tax system into a single general equilibrium model. Using disaggregate calculations of user cost, we measure interasset distortions from the differential taxation of many types of assets. Simultaneously, we model the intersectoral distortions from the differential treatment of the corporate sector, noncorporate sector, and owner-occupied housing. Industries in the model have different uses of assets and degrees of incorporation. Results indicate that distortions between sectors are much smaller than those of the Harberger model. Distortions among industries arealso much smaller than those in models using average effective tax rates. Distortions among assets are larger, but the total of all these welfare costs is still below one percent of income.

Suggested Citation

  • Don Fullerton & Yolanda K. Henderson, 1986. "A Disaggregate Equilibrium Model of the Tax Distortions Among Assets, Sectors, and Industries," NBER Working Papers 1905, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1905 Note: PE
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    References listed on IDEAS

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    1. Don Fullerton & Roger H. Gordon, 1983. "A Reexamination of Tax Distortions in General Equilibrium Models," NBER Chapters,in: Behavioral Simulation Methods in Tax Policy Analysis, pages 369-426 National Bureau of Economic Research, Inc.
    2. Feldstein, Martin & Dicks-Mireaux, Louis & Poterba, James, 1983. "The effective tax rate and the pretax rate of return," Journal of Public Economics, Elsevier, pages 129-158.
    3. Alan J. Auerbach, 1985. "Real Determinants of Corporate Leverage," NBER Chapters,in: Corporate Capital Structures in the United States, pages 301-324 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. Bradford, David F., 1981. "The incidence and allocation effects of a tax on corporate distributions," Journal of Public Economics, Elsevier, pages 1-22.
    6. Auerbach, Alan J., 1984. "Taxes, firm financial policy and the cost of capital: An empirical analysis," Journal of Public Economics, Elsevier, pages 27-57.
    7. Fullerton, Don & Henderson, Yolanda Kodrzycki, 1985. "Long-run Effects of the Accelerated Cost Recovery System," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 363-372, August.
    8. N/A, 1985. "General Policy," India Quarterly: A Journal of International Affairs, , vol. 41(1), pages 74-79, January.
    9. Mervyn A. King & Don Fullerton, 1983. "The Taxation of Income from Capital: A Comparative Study of the U.S., U.K., Sweden, and West Germany--The Theoretical Framework--," NBER Working Papers 1058, National Bureau of Economic Research, Inc.
    10. 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, pages 281-321.
    11. Don Fullerton, 1983. "Which Effective Tax Rate?," NBER Working Papers 1123, National Bureau of Economic Research, Inc.
    12. 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.
    13. Ballard, Charles L. & Fullerton, Don & Shoven, John B. & Whalley, John, 2009. "A General Equilibrium Model for Tax Policy Evaluation," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226036335.
    14. Poterba, James M. & Summers, Lawrence H., 1983. "Dividend taxes, corporate investment, and `Q'," Journal of Public Economics, Elsevier, pages 135-167.
    15. Barry P. Bosworth, 1985. "Taxes and the Investment Recovery," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(1), pages 1-45.
    16. Liam P. Ebrill & David G. Hartman, 1983. "The Corporate Income Tax, Entrepreneurship, and the Noncorporate Sector," Public Finance Review, , vol. 11(4), pages 419-436, October.
    17. N/A, 1985. "General Policy," India Quarterly: A Journal of International Affairs, , vol. 41(1), pages 112-117, January.
    18. Don Fullerton, 1985. "The Indexation of Interest, Depreciation, and Capital Gains: A Model ofInvestment Incentives," NBER Working Papers 1655, National Bureau of Economic Research, Inc.
    19. Auerbach, Alan J., 1984. "Taxes, firm financial policy and the cost of capital: An empirical analysis," Journal of Public Economics, Elsevier, pages 27-57.
    20. Feldstein, Martin & Dicks-Mireaux, Louis & Poterba, James, 1983. "The effective tax rate and the pretax rate of return," Journal of Public Economics, Elsevier, pages 129-158.
    21. Poterba, James M. & Summers, Lawrence H., 1983. "Dividend taxes, corporate investment, and `Q'," Journal of Public Economics, Elsevier, pages 135-167.
    22. 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, pages 281-321.
    23. Patric H. Hendershott, 1985. "Tax Reform, Interest Rates and Capital Allocation," NBER Working Papers 1708, National Bureau of Economic Research, Inc.
    24. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "Replacing the Personal Income Tax with a Progressive Consumption Tax," NBER Chapters,in: A General Equilibrium Model for Tax Policy Evaluation, pages 171-187 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Don Fullerton & Andrew B. Lyon, 1988. "Tax Neutrality and Intangible Capital," NBER Chapters,in: Tax Policy and the Economy: Volume 2, pages 63-88 National Bureau of Economic Research, Inc.
    2. Fehr, Hans, 1999. "Welfare Effects of Dynamic Tax Reforms," Beiträge zur Finanzwissenschaft, Mohr Siebeck, Tübingen, edition 1, volume 5, number urn:isbn:9783161470165.
    3. Don Fullerton & Yolanda Kodrzycki Henderson, 1987. "The Impact of Fundamental Tax Reform on the Allocation of Resources," NBER Chapters,in: The Effects of Taxation on Capital Accumulation, pages 401-444 National Bureau of Economic Research, Inc.
    4. Goulder, Lawrence H. & Thalmann, Philippe, 1993. "Approaches to efficient capital taxation : Leveling the playing field vs. living by the golden rule," Journal of Public Economics, Elsevier, pages 169-196.
    5. Andrew A. Samwick, 1996. "Tax Shelters and Passive Losses after the Tax Reform Act of 1986," NBER Chapters,in: Empirical Foundations of Household Taxation, pages 193-233 National Bureau of Economic Research, Inc.
    6. Bob Hamilton & Jack Mintz & John Whalley, 1991. "Decomposing the Welfare Costs of Capital Tax Distortions: The Importance of Risk Assumptions," NBER Working Papers 3628, National Bureau of Economic Research, Inc.
    7. Fullerton, Don & Mackie, James B. III, 1989. "Economic Efficiency in Recent Tax Reform History: Policy Reversals or Consistent Improvements?," National Tax Journal, National Tax Association, vol. 42(1), pages 1-13, March.
    8. Goulder, Lawrence H. & Thalmann, Philippe, 1993. "Approaches to efficient capital taxation : Leveling the playing field vs. living by the golden rule," Journal of Public Economics, Elsevier, pages 169-196.
    9. Patric H. Hendershott, 1988. "The Tax Reform Act Of 1986 And Economic Growth," NBER Working Papers 2553, National Bureau of Economic Research, Inc.
    10. Estelle P. Dauchy, 2013. "The Efficiency Cost of Asset Taxation in the U.S. after Accounting for Intangible Assets," Working Papers w0199, Center for Economic and Financial Research (CEFIR).
    11. Holmoy, Erling & Vennemo, Haakon, 1995. "A general equilibrium assessment of a suggested reform in capital income taxation," Journal of Policy Modeling, Elsevier, vol. 17(6), pages 531-556, December.

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