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Differential Taxation of for-Profit and Nonprofit Firms: A Computational General Equilibrium Approach

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  • Marianne F. Johnson

Abstract

A small-scale computational general equilibrium model is used to examine the efficiency costs of exempting commercial nonprofits from the corporate income tax when they compete directly with for-profit firms. Simulation results from differential-incidence experiments indicate significant welfare gains when the tax wedge is reduced at the margin between the for-profit and nonprofit firms and the change in government revenue is financed by lump-sum taxes. However, although welfare gains exist at the margin, average excess burden estimates suggest that some level of differential taxation is welfare-improving if nonprofits contribute to the production of a good with positive externalities. Results are compared with those from the literature on the differential taxation of corporate and noncorporate firms and are found generally consistent.

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  • Marianne F. Johnson, 2003. "Differential Taxation of for-Profit and Nonprofit Firms: A Computational General Equilibrium Approach," Public Finance Review, , vol. 31(6), pages 623-647, November.
    • Handle: RePEc:sae:pubfin:v:31:y:2003:i:6:p:623-647
    DOI: 10.1177/1091142103254579
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    References listed on IDEAS

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    2. Kraus, Margit & Stegarescu, Dan, 2005. "Non-Profit-Organisationen in Deutschland: Ansatzpunkte für eine Refom des Wohlfahrtsstaats," ZEW Dokumentationen 05-02, ZEW - Leibniz Centre for European Economic Research.
    3. Regmi, Madhav & Featherstone, Allen Merril, 2018. "Differential Taxation In Agricultural Credit Market," 2018 Annual Meeting, February 2-6, 2018, Jacksonville, Florida 266692, Southern Agricultural Economics Association.

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