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Specific Inputs, Value-Added, and Production Linkages in Tax-Incidence Theory

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Abstract

A general equilibrium framework is developed for analyzing the role of immobile factors of production which produce inputs for other sectors. The production process and the cross-sector connections are explicitly specified, and tax-incidence propositions are compared with those in related models. Numerical examples, based on a consistent data set for the U.S. economy, illustrate the results and highlight the difficulties that arise in defining equivalent specifications, analytically and empirically. Goods mobility offsets some effects of factor immobility, but the computed tax elasticities are rarely the same as in mobile-factors-only models. The Marshallian short-run-long-run distinction, blurred somewhat by production linkages, does not disappear.

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  • Bhatia, Kul B., 1997. "Specific Inputs, Value-Added, and Production Linkages in Tax-Incidence Theory," University of Western Ontario, Departmental Research Report Series 9714, University of Western Ontario, Department of Economics.
    • Handle: RePEc:uwo:uwowop:9714
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    1. Kul B. Bhatia, 2001. "Intra-Sector Mobility and Specific Inputs in Tax-Incidence Theory," University of Western Ontario, Departmental Research Report Series 20015, University of Western Ontario, Department of Economics.
    2. Anwar, Sajid & Sun, Sizhong, 2015. "Taxation of labour income and the skilled–unskilled wage inequality," Economic Modelling, Elsevier, vol. 47(C), pages 18-22.

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    More about this item

    Keywords

    PRODUCTION; ECONOMIC EQUILIBRIUM; TAX POLICY;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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