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Estimating the Welfare Cost of Tax Preferences

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  • Jacquelene M. Browning

    (Sweet Briar College)

Abstract

This paper develops an estimate of the welfare cost of tax preferenees, or "loop-holes," in the federal individual income tax. Items given preferential treatment are considered as a composite good with a distortion in its relative price due to exclusion from taxation. In 1974, the welfare cost is estimated to be $7.9 billion, or 6.7% of tax revenue. Most of this welfare cost is borne by the higher income classes; and when this cost is considered to be part of the tax burden, the degree of progressivity of the tax is increased. An estimate of the marginal welfare cost of tax preferences is also developed.

Suggested Citation

  • Jacquelene M. Browning, 1979. "Estimating the Welfare Cost of Tax Preferences," Public Finance Review, , vol. 7(2), pages 199-219, April.
    • Handle: RePEc:sae:pubfin:v:7:y:1979:i:2:p:199-219
    DOI: 10.1177/109114217900700205
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    References listed on IDEAS

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    1. W. J. Corlett & D. C. Hague, 1953. "Complementarity and the Excess Burden of Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 21(1), pages 21-30.
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    3. Browning, Edgar K, 1976. "The Marginal Cost of Public Funds," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 283-298, April.
    4. Aaron, Henry, 1970. "Income Taxes and Housing," American Economic Review, American Economic Association, vol. 60(5), pages 789-806, December.
    5. Siegfried, John J & Tiemann, Thomas K, 1974. "The Welfare Cost of Monopoly: An Inter-Industry Analysis," Economic Inquiry, Western Economic Association International, vol. 12(2), pages 190-202, June.
    6. Feldstein, Martin & Clotfelter, Charles, 1976. "Tax incentives and charitable contributions in the United States : A microeconometric analysis," Journal of Public Economics, Elsevier, vol. 5(1-2), pages 1-26.
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    Cited by:

    1. Edgar K. Browning & Jacquelene M. Browning, 1985. "Why Not a True Flat Rate Tax?," Cato Journal, Cato Journal, Cato Institute, vol. 5(2), pages 629-656, Fall.

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