The Incidence and Efficiency Costs of Corporate Taxation When Corporate and Noncorporate Firms Produce the Same Goods

International Monetary Fund

No 1988/032, IMF Working Papers from International Monetary Fund

Abstract: One difficulty confronting Harberger’s celebrated model of the corporate income tax is how to treat the noncorporate production in primarily corporate sectors and corporate production in primarily noncorporate sectors. This paper presents a two-good model with corporate and noncorporate production of both goods. The incidence of the corporate tax in our Mutual Production Model (MPM) can differ markedly from that in the Harberger Model. The difference between the two models in deadweight loss is also striking, with losses in the MPM over ten times as large as in the Harberger Model.

Keywords: WP; tax burden; tax rate; income tax; substitution elasticity; Noncorporate firm; capital share; incidence formula; Corporate income tax; Macroprudential policy instruments; Self-employment; Demand elasticity; Tax incidence (search for similar items in EconPapers)
Pages: 49
Date: 1988-01-01
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1988/032

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