Working Paper: NBER ID: w1905
Authors: Don Fullerton; Yolanda Kodrzycki; Henderson
Abstract: This paper encompasses multiple sources of inefficiency introduced by the U.S. tax system into a single general equilibrium model. Using disaggregate calculations of user cost, we measure interasset distortions from the differential taxation of many types of assets. Simultaneously, we model the intersectoral distortions from the differential treatment of the corporate sector, noncorporate sector, and owner-occupied housing. Industries in the model have different uses of assets and degrees of incorporation. Results indicate that distortions between sectors are much smaller than those of the Harberger model. Distortions among industries arealso much smaller than those in models using average effective tax rates. Distortions among assets are larger, but the total of all these welfare costs is still below one percent of income.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| interasset distortions (G19) | intersectoral distortions (H23) |
| interasset distortions (G19) | interindustry distortions (F12) |
| distortion between corporate and noncorporate sectors (G39) | almost nonexistent (F29) |
| total welfare costs from distortions (D69) | less than one percent of national output (E23) |
| specification of substitution elasticities (D10) | magnitude of the distortions (C51) |