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Tax Equivalences and their Implications

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  • Alan J. Auerbach

Abstract

In economic analyses of the effects of tax policies, one commonly encounters discussions of the equivalence of apparently different policies, where equivalence is defined as the policies having the same impact on fundamental economic outcomes. These related tax policies may differ in many respects, which give rise to conditions under which the equivalences may break down. This paper draws out the key issues that relate to tax equivalences, using several illustrations from important instances of such equivalences that span different areas of taxation, with many of these illustrations relating to the taxation of capital income. Recognition of equivalences and the ways in which they may fail to hold is important both for positive analysis (e.g., the political reasons for choosing one approach over another) and for normative analysis (to determine which approach may be a more effective way of implementing a policy).

Suggested Citation

  • Alan J. Auerbach, 2018. "Tax Equivalences and their Implications," NBER Working Papers 25158, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:25158
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    References listed on IDEAS

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    1. Delipalla, Sofia & Keen, Michael, 1992. "The comparison between ad valorem and specific taxation under imperfect competition," Journal of Public Economics, Elsevier, vol. 49(3), pages 351-367, December.
    2. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    3. repec:bin:bpeajo:v:48:y:2017:i:2017-02:p:409-432 is not listed on IDEAS
    4. Alan J. Auerbach, 2017. "Demystifying the Destination-Based Cash-Flow Tax," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(2 (Fall)), pages 409-432.
    5. Auerbach, Alan J, 1987. "The Tax Reform Act of 1986 and the Cost of Capital," Journal of Economic Perspectives, American Economic Association, vol. 1(1), pages 73-86, Summer.
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    More about this item

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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