The Incidence of Corporate Income Tax under Variable Returns to Scale

Amar K Parai

Public Finance = Finances publiques, 1988, vol. 43, issue 3, 414-24

Abstract: A variable-returns-to-scale version of A. C. Harberger's (1962) corporate tax incidence model is developed to highlight the role of both sectoral factor intensities and returns-to-scale elasticities in the determination of the tax incidence. If production is subject to increasing returns to scale, the income of capital relative to labor might, or might not, fall as a result of the tax even when the taxed sector is capital intensive. If returns are decreasing and the taxed sector is capital intensive, the tax could raise the relative income of capital only if the returns-to-scale elasticity differential favors the untaxed sector.

Date: 1988
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Persistent link: https://EconPapers.repec.org/RePEc:pfi:pubfin:v:43:y:1988:i:3:p:414-24

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