Taxation and Excess Burden: A Life-Cycle Perspective

27 Pages Posted: 18 Aug 2004

See all articles by John Driffill

John Driffill

University of London - Birkbeck College; Centre for Economic Policy Research (CEPR)

Harvey S. Rosen

Princeton University - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 1981

Abstract

A lifetime perspective is appropriate in assessing the welfare implications of government tax policies. Although a number of attempts have been made to ex- amine the excess burden of taxation in life-cycle models, these have tended to ignore the role of human capital accumulation and/or the leisure-income choice. In this paper, we do numerical simulations with a model that takes both of these phenomena into account. We find that under reasonable assumptions, the failure to take into account distortions of human capital decisions produces substantial underestimates of the excess burden of income taxation. In addition, allowing for the endogeneity of human capital increases the efficiency of a personal consumption tax relative to that of an equal yield income tax.

Suggested Citation

Driffill, John and Rosen, Harvey S., Taxation and Excess Burden: A Life-Cycle Perspective (June 1981). NBER Working Paper No. w0698, Available at SSRN: https://ssrn.com/abstract=349095

John Driffill (Contact Author)

University of London - Birkbeck College ( email )

London, WC1E 7HX
United Kingdom
+44 20 7631 6417 (Phone)
+44 20 7631 6416 (Fax)

Centre for Economic Policy Research (CEPR)

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United Kingdom

Harvey S. Rosen

Princeton University - Department of Economics ( email )

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Princeton, NJ 08544
United States

National Bureau of Economic Research (NBER)

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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

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