NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Taxation and Excess Burden: A Life-Cycle Perspective

E. John Driffill, Harvey S. Rosen

NBER Working Paper No. 698 (Also Reprint No. r0444)
Issued in June 1981
NBER Program(s):   PE

A lifetime perspective is appropriate in assessing the welfare implications of government tax policies. Although a number of attempts have been made to ex- amine the excess burden of taxation in life-cycle models, these have tended to ignore the role of human capital accumulation and/or the leisure-income choice. In this paper, we do numerical simulations with a model that takes both of these phenomena into account. We find that under reasonable assumptions, the failure to take into account distortions of human capital decisions produces substantial underestimates of the excess burden of income taxation. In addition, allowing for the endogeneity of human capital increases the efficiency of a personal consumption tax relative to that of an equal yield income tax.

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Document Object Identifier (DOI): 10.3386/w0698

Published: Driffill, John E., and Harvey S. Rosen. "Taxation and Excess Burden: A Life-Cycle Persepective." International Economic Review, Vol. 24, No.3, (October 1983), pp. 735-749.

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