Public Finance in a Nutshell: A Cobb Douglas Teaching Tool for General Equilibrium Tax Incidence and Excess Burden

Don Fullerton () and Chi Ta

No 23064, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: To help first- or second-year graduate students in economics apply their theoretical training, this paper shows how to solve a simple and intuitive computable general equilibrium (CGE) model using a calculator. Because this simplified Harberger model uses Cobb Douglas functional forms for utility and production, one can solve for all input and output prices and quantities with no taxes and then solve for exact measures of output with a large tax change (not using derivatives). We then show how to solve simultaneously for capital and labor prices (incidence on the sources side of income), for both output prices (incidence on the uses side), for exact measures of overall welfare loss such as the equivalent variation, for excess burden and marginal excess burden, and for the effects on revenue in the form of a Laffer Curve.

JEL-codes: A20 C63 C68 D04 D58 H21 H22 H23 H24 H25 (search for similar items in EconPapers)
Date: 2017-01
New Economics Papers: this item is included in nep-pub
Note: EEE PE
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Published as Don Fullerton & Chi L. Ta, 2017. "Public Finance in a Nutshell: A Cobb Douglas Teaching Tool for General Equilibrium Tax Incidence and Excess Burden," National Tax Journal, vol 70(1), pages 155-170.

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Related works:
Journal Article: Public Finance in a Nutshell: A Cobb Douglas Teaching Tool for General Equilibrium Tax Incidence and Excess Burden (2017)
Working Paper: Public Finance in a Nutshell: A Cobb-Douglas Teaching Tool for General Equilibrium Tax Incidence and Excess Burden (2016)
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