Tax Incidence in Dynamic Economies with Externalities and Endogenous Labor Supply

Daisuke Amano, Jun-ichi Itaya () and Kazuo Mino

No 192, Discussion paper series. A from Graduate School of Economics and Business Administration, Hokkaido University

Abstract: This paper examines the long-run incidence of factor income taxes and expenditure taxes in an infinitely lived representative agent growth model which allows both for production externalities and for endogenous labor supply. The novelty of this paper is its investigating of how the long-run incidence of taxes is affected by indeterminacy of equilibria that is caused mainly by nonseparable preferences between consumption and leisure. We show that the effects of the taxes on steady state welfare as well as the steady state levels of consumption, capital, and employment are all negative regardless of whether a steady state is determinate or indeterminate in an exogenous growth model. By contrast, in an endogenous growth model those distortionary taxes are growth and welfare enhancing in both a determinate steady state featuring the unconventional slope of the labor supply curve and an indeterminate steady state featuring its conventional slope. (JEL classifications: H41, F13, D62)

Keywords: Tax incidence; externalities; indeterminacy and endogenous labor supply; H41; F13; D62 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2007-11-09
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Citations: View citations in EconPapers (5)

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