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Tax Neutrality and Social Welfare in a Comptutational General Equilibrium Framework

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Listed:
  • John P. Formby

    (University of Alabama)

  • Steven G. Medema

    (University of Colorado at Denver)

  • W. James Smith

    (University of Colorado at Denver)

Abstract

This article investigates the effects of distributionally neutral tax changes on equity and efficiency using computational general equilibrium and stochastic dominance techniques. The authors find, for a tax increase, that the constant-tax-share definition is preferred both in terms of efficiency and equity for a wide range of values of the elasticity of labor supply. For a tax decrease, the constant-after-tax-income definition dominates. For low elasticities of labor supply, no general welfare conclusions can be drawn, but under reasonable assumptions the constant-tax-share definition would be approved by a risk-averse median voter.

Suggested Citation

  • John P. Formby & Steven G. Medema & W. James Smith, 1995. "Tax Neutrality and Social Welfare in a Comptutational General Equilibrium Framework," Public Finance Review, , vol. 23(4), pages 419-447, October.
    • Handle: RePEc:sae:pubfin:v:23:y:1995:i:4:p:419-447
    DOI: 10.1177/109114219502300401
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    References listed on IDEAS

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    Cited by:

    1. Joseph E. Mullat, 2016. "The Left- and Right-Wing Political Power Design: The Dilemma of Welfare Policy with Low-Income Relief," Social Sciences, MDPI, vol. 5(1), pages 1-33, February.

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