Chapter 26 Tax incidence

Don Fullerton, Gilbert E. Metcalf

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

This chapter reviews the concepts, methods, and results of studies that analyze the incidence of taxes. The purpose of such studies is to determine how the burden of a particular tax is allocated among consumers through higher product prices, workers through a lower wage rate, or other factors of production through lower rates of return to those factors. The methods might involve simple partial equilibrium models, analytical general equilibrium models, or computable general equilibrium models. In a partial equilibrium model, the burden of a tax is shown to depend on the elasticity of supply relative to the elasticity of demand. Partial equilibrium models also are used to consider cases with imperfect competition. In a two-sector general equilibrium model, a tax might be imposed on either commodity, on either factor of production, or on a factor used in one sector. The original use of this model is to analyze the corporate income tax as a tax on capital used only in one sector, the corporate sector. The model can be used to show when the burden falls only on capital or when the burden is shared with labor. The model also has been applied to the property tax, and results of the model have been used to calculate the overall burden on each income group. Because the total stock of capital is fixed in that model, however, dynamic models are required to show how a tax on capital affects capital accumulation, future wage rates, and overall burdens. Such models might also provide analytical results or computational results. The most elaborate recent models calculate the lifetime incidence of each group. Finally, the chapter reviews the use of such incidence methods and results in the policy process.

Original languageEnglish (US)
Title of host publicationHandbook of Public Economics
EditorsAlan Auerbach, Martin Feldstein
Pages1787-1872
Number of pages86
DOIs
StatePublished - Dec 1 2002
Externally publishedYes

Publication series

NameHandbook of Public Economics
Volume4
ISSN (Print)1573-4420

Keywords

  • corporate income taxes
  • distributional effects
  • economic incidence
  • general equilibrium models
  • payroll taxes
  • personal taxes
  • sales and excise taxes
  • statutory incidence
  • tax shifting

ASJC Scopus subject areas

  • Sociology and Political Science
  • Finance
  • Economics and Econometrics

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  • Cite this

    Fullerton, D., & Metcalf, G. E. (2002). Chapter 26 Tax incidence. In A. Auerbach, & M. Feldstein (Eds.), Handbook of Public Economics (pp. 1787-1872). (Handbook of Public Economics; Vol. 4). https://doi.org/10.1016/S1573-4420(02)80005-2