Tax Neutrality and Social Welfare in a Comptutational General Equilibrium Framework

John P. Formby, Steven Medema () and W. James Smith
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John P. Formby: University of Alabama

Public Finance Review, 1995, vol. 23, issue 4, 419-447

Abstract: This article investigates the effects of distributionally neutral tax changes on equity and efficiency using computational general equilibrium and stochastic dominance techniques. The authors find, for a tax increase, that the constant-tax-share definition is preferred both in terms of efficiency and equity for a wide range of values of the elasticity of labor supply. For a tax decrease, the constant-after-tax-income definition dominates. For low elasticities of labor supply, no general welfare conclusions can be drawn, but under reasonable assumptions the constant-tax-share definition would be approved by a risk-averse median voter.

Date: 1995
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:23:y:1995:i:4:p:419-447

DOI: 10.1177/109114219502300401

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