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Telecommunications Tax Design: The Role of a Preexisting Labor Tax Distortion

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  • Lee, Fitzroy A.

Abstract

The paper assesses the effects of a preexisting labor tax on the relative efficiency of a capital tax and a sales tax on the telecommunications sector. Public finance theory predicts that the efficiency costs of a sales tax increase when there is a preexisting labor tax, but the theory is ambiguous as to the effect of the preexisting labor tax on the efficiency costs of a capital tax. Using a numerical general equilibrium model I show that the efficiency costs of both taxes are of the same orders of magnitude in a first-best setting. But when there is a preexisting labor tax, the capital tax is more efficient.

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  • Lee, Fitzroy A., 2002. "Telecommunications Tax Design: The Role of a Preexisting Labor Tax Distortion," National Tax Journal, National Tax Association;National Tax Journal, vol. 55(1), pages 41-56, March.
    • Handle: RePEc:ntj:journl:v:55:y:2002:i:1:p:41-56
    DOI: 10.17310/ntj.2002.1.03
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    1. Ian W.H. Parry & Roberton C. Williams III & Lawrence H. Goulder, 2002. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 25, pages 471-503, Edward Elgar Publishing.
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