Corporate Tax Incidence and Inefficiency When Corporate and Noncorporate Goods Are Close Substitutes

Jane G. Gravelle () and Laurence Kotlikoff ()

Economic Inquiry, 1993, vol. 31, issue 4, pages 501-16

Abstract: An important deficiency in Harberger's (1962) model of corporate income taxation is its inability to consider both corporate and noncorporate production of the same good. Within-industry substitution has potentially major implications for both the excess burden and incidence of the corporate tax. The authors analyze this within-industry substitution using a model in which each industry/sector contains corporate and noncorporate firms (with identical production functions) that produce goods that are close substitutes. The scope for considerable within-industry substitution of noncorporate for corporate capital leads to a very much larger excess burden than that in the Harberger model. Copyright 1993 by Oxford University Press.

Date: 1993
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