TY  - JOUR
AU  - Gordon,Roger H.
AU  - Wilson,John D.
TI  - Tax Structure and Government Behavior:  Implications for Tax Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7244
PY  - 1999
Y2  - July 1999
UR  - http://www.nber.org/papers/w7244
L1  - http://www.nber.org/papers/w7244.pdf
N1  - Author contact info:
Roger H. Gordon
Department of Economics 0508
University of California, San Diego
9500 Gilman Drive, Dept. 0508
La Jolla, CA 92093
Tel: 858/534-4828
Fax: 858/534-7040
E-Mail: rogordon@ucsd.edu

John Wilson
Bureau of Statistics
Middle Eastern Department, Rm 3-544
700 19th Street, NW
Washington, DC 20431
E-Mail: jwilson@itic.org
AB  - Changes in tax policy can affect all aspects of the economy.  Not only do firms and individuals change behavior, creating efficiency costs, but government expenditure choices can also change.  Unless these expenditure choices had been  optimal' previously, changes in response to a tax reform affect welfare and should be taken into account when designing tax policy. This paper develops a specific model of government behavior and then explores the implications of government, as well as private, behavioral responses for tax policy.  In particular, we assume that government officials favor expenditure (or regulatory) choices that increase the government's budget.  As a result, higher tax rates on a particular activity encourage government behavior that aids the growth of this activity.  This response enables tax policy to redirect government activity in desirable directions, but it also makes Pigovian taxes on negative externalities less effective.
ER  -