On the marginal excess burden of taxation in an overlapping generations model

Chung Tran and Sebastian Wende

Journal of Macroeconomics, 2021, vol. 70, issue C

Abstract: We extend marginal excess burden (MEB) analysis in public finance literature to a dynamic general equilibrium model with incomplete markets and heterogeneous households. This extension allows us to quantitatively assess efficiency ranking and incidence of taxes. Our results indicate a disparity in welfare cost and distributional consequence of different forms of taxation on capital, labor and consumption. According to our MEB ranking, capital income taxation appears to be least efficient as it results in larger marginal excess burdens, compared to labor income tax and consumption tax. The tax incidence analysis shows variation of tax burdens across households, depending on their age, income type and generation. In particular, older households with higher income bear the highest burden of company income tax; meanwhile, future born households bear the highest burden of personal income tax. Hence, our MEB analysis demonstrates a fruitful approach to better understanding efficiency and incidence of tax reforms in one unified framework.

Keywords: Taxation; Deadweight loss; Overlapping generations; Agent heterogeneity; Excess burden; Tax incidence; Dynamic general equilibrium; Welfare (search for similar items in EconPapers)
JEL-codes: E62 H21 H22 H24 H25 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: On the Marginal Excess Burden of Taxation in an Overlapping Generations Model (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:70:y:2021:i:c:s0164070421000768

DOI: 10.1016/j.jmacro.2021.103377

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