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Integrating Tax Distortions and Externality Theory

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  • Charles A. M. De Bartolome

Abstract

Tax distortions are interpreted as fiscal externalities. By purchasing a taxed commodity, the individual generates tax revenue that is a benefit external to the purchaser. Behaving noncooperatively, the individual chooses a quantity that is less than the efficient level. The excess burden is interpreted as the benefit of choosing quantities cooperatively. The analysis clarifies the difference between the marginal cost of funds and the marginal excess burden, and explains the presence of compensated demands in the Harberger Triangle, in the Index of Discouragement, and in the Ramsey Equations.

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  • Charles A. M. De Bartolome, 1999. "Integrating Tax Distortions and Externality Theory," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 1(3), pages 339-358, July.
    • Handle: RePEc:bla:jpbect:v:1:y:1999:i:3:p:339-358
    DOI: 10.1111/1097-3923.00015
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    Cited by:

    1. Wendner, Ronald & Goulder, Lawrence H., 2008. "Status effects, public goods provision, and excess burden," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 1968-1985, October.

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