Economic Effects of Including Services in the Sales Tax Base: an Applied General Equilibrium Analysis

Donald N. Baum
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Donald N. Baum: University of Nebraska at Omaha

Public Finance Review, 1991, vol. 19, issue 2, 166-192

Abstract: An applied general equilibrium model is employed to determine the effects of including additional services in the sales tax base. This approach allows the incidence of the base-broadening policy to be determined when all prices and quantities are variable. The base-broadening policy is a potential Pareto-improvemen, its differential incidence is progressive, and the policy reduces (increases) the quantity of labor supplied by the lower (higher) income households. The latter result, upward-sloping labor supply curves with respect to both the cost of living and the wage, is surpriseng. The source of this result is that the income effect on labor-leisure choice of a change in the cost of living is larger than the income effect of a change in the wage.

Date: 1991
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:19:y:1991:i:2:p:166-192

DOI: 10.1177/109114219101900203

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