Differential incidence in the presence of initial distorting taxes |
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Authors: | Adolf L Vandendorpe Ann F Friedlaender |
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Institution: | Macalester College, St. Paul, MN 55105, U.S.A.;M.I.T., Cambridge, MA 02139, U.S.A |
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Abstract: | This paper extends the two-sector, two-factor, general-equilibrium analysis of differential tax incidence by considering an initial situation where the government finances a fixed commodity bundle by distorting commodity and factor taxes. This alters the traditional analysis of marginal differential incidence in a fundamental way by necessitating the simultaneous determination of the change in the rental-wage ratio, the change in aggregate welfare and the change in an endogenously adjusting tax parameter. This contributes towards an integration of the study of the excess-burden effects and the distributional effects of a given tax situation. |
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