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Transition Losses of Partially Mobile Industry-Specific Capital

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  • Don Fullerton

Abstract

Comparative static models typically assume homogeneous and mobile factors in estimating the economic effects of a tax policy change. Even dynamic models employ a given homogeneous capital stock in two different al locations for the first period of two equilibrium sequences. This malleable capital assumption causes overstatement of early efficiency gains from policies designed to improve factor allocation. on the other hand, immobile factor models would understate such gains by assuming that no capital ever relocates. The model in this paper attempts to bridge this gap by restricting each industry's capital reduction to its rate of depreciation. The stock of depreciated capital from the previous period represents an industry-specific type of capital which may earn a lower equilibrium return. The usage of mobile capital above this minimum constraint is limited by the total gross saving of the economy, including all industries' depreciation and consumer net saving. The industry-specific capital model suggests, for example, that previous estimates of the dynamic efficiency gain from full integration of personal and corporate taxes in the U.S. are overstated by about $5 billion. The model could also be used to estimate distributional impacts on individuals with more than proportionate ownership of capital in particular industries.

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  • Don Fullerton, 1980. "Transition Losses of Partially Mobile Industry-Specific Capital," NBER Working Papers 0520, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0520
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    1. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 3-27, April.
    2. Shoven, John B. & Whalley, John, 1972. "A general equilibrium calculation of the effects of differential taxation of income from capital in the U.S," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 281-321, November.
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    4. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "General Equilibrium Analysis of Tax Policies," NBER Chapters, in: A General Equilibrium Model for Tax Policy Evaluation, pages 6-24, National Bureau of Economic Research, Inc.
    5. Martin Feldstein, 1974. "Incidence of a Capital Income Tax in a Growing Economy with Variable Savings Rates," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(4), pages 505-513.
    6. Martin S. Feldstein, 1974. "Tax Incidence in a Growing Economy with Variable Factor Supply," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 88(4), pages 551-573.
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    1. Goulder, Lawrence H. & Summers, Lawrence H., 1989. "Tax policy, asset prices, and growth : A general equilibrium analysis," Journal of Public Economics, Elsevier, vol. 38(3), pages 265-296, April.
    2. Lawrence H. Goulder & John B. Shoven & John Whalley, 1982. "Domestic Tax Policy and the Foreign Sector: The Importance of Alternative Foreign Sector Formulations to Results from a General Equilibrium," NBER Working Papers 0919, National Bureau of Economic Research, Inc.
    3. Roland-Holst, David & Tarp, Finn & Huong, Pham Lan & Thanh, Vo Tri, 2003. "Dragon by the Tail, Dragon by the Head, Bilateralism and Globalism in East Asia," MPRA Paper 29423, University Library of Munich, Germany.
    4. MASSIANI, Jérôme, 2022. "Computable General Equilibrium assessment of mega-events: Issues and possible solutions," Journal of Policy Modeling, Elsevier, vol. 44(5), pages 920-942.
    5. Wing, Ian Sue, 2006. "The synthesis of bottom-up and top-down approaches to climate policy modeling: Electric power technologies and the cost of limiting US CO2 emissions," Energy Policy, Elsevier, vol. 34(18), pages 3847-3869, December.
    6. Athiphat Muthitacharoen & George R. Zodrow, 2012. "Revisiting the Excise Tax Effects of the Property Tax: Working Paper 2012-05," Working Papers 42926, Congressional Budget Office.
    7. Rae, Allan N. & Strutt, Anna, 2003. "Agricultural Trade Reform and Environmental Pollution from Livestock in OECD Countries," Conference papers 331139, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    8. Ian Sue Wing, 2005. "The Synthesis of Bottom-Up and Top-Down Approaches to Climate Policy Modeling: Electric Power Technologies and the Cost of Limiting U.S. CO2 Emissions," Computing in Economics and Finance 2005 21, Society for Computational Economics.

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