On the decomposition of the harberger tax incidence equation

Conclusions This paper has re-examined an important area in tax incidence analysis: how the famous Harberger equation can and should be decomposed. The well-known and generally accepted decomposition scheme proposed by Mieszkowski has recently been challenged byH-H, with potential ramifications concerning the significance of the general equilibrium approach pioneered by Harberger. It has been shown that this challenge has been misplaced:H-H failed to appreciate the equal yield requirement in the Mieszkowski scheme and, consequently, their proposed method of decomposition is of little economic content. This analysis reaffirms the validity and usefulness of theH-M approach.This paper was written when the author was on the faculty of Louisiana State University. The views expressed herein are his and do not necessarily reflect those of the IMF or its staff.