NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

If Labor is Inelastic, Are Taxes Still Distorting?

Don Fullerton

NBER Working Paper No. 2810 (Also Reprint No. r1571)
Issued in 1989
NBER Program(s):   PE

Three recent papers measure the marginal excess burden of labor taxes in the United States. They obtain very different results even where they all use a zero uncompensated labor supply elasticity and assume that the additional revenue is spent on a public good that is separable in utility. The impression is that other parameters must explain the differences in results. Yet each paper uses a different concept of excess burden. Here, I calculate all three measures in one model and show how conceptual differences explain the results. Only one of these measures isolates the distortionary effects of taxes in a way that depends on the compensated labor supply elasticity. The other two measures incorporate income effects and thus depend on the actual change in labor. This result was obscured because those papers report positive marginal excess burden even with a zero uncomspensated labor supply elasticity. This paper shows conditions under which their measure is zero, and it interprets the measures in light of recent literature.

download in pdf format
   (284 K)

download in djvu format
   (140 K)

email paper

This paper is available as PDF (284 K) or DjVu (140 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w2810

Published: "Reconciling Recent Estimates of the Marginal Welfare Cost of Taxation." From The American Economic Review, Vol. 81, No. 1, pp. 302-308, (March 1991)

Users who downloaded this paper also downloaded these:
Ballard and Fullerton w3506 Distortionary Taxes and the Provision of Public Goods
Klenow and Rodriguez-Clare The Neoclassical Revival in Growth Economics: Has It Gone Too Far?
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us