Atlantic Economic Journal

, Volume 23, Issue 3, pp 189–202 | Cite as

Comparing the welfare effects of income and excise taxes in the presence of the other taxation paradox

  • Clarence C. Morrison
Hotelling Symposium


This paper implements numerically a general equilibrium model in which all private producers are price makers and the government utilizes tax revenues to provide a public good. After deriving the partial equilibrium condition for an excise tax to increase price by more than the tax (for a monopoly firm), numerical examples are given, demonstrating this phenomenon for both partial and general equilibrium. In the general equilibrium context, optimal excise taxation and optimal flat-rate income taxation are compared. In the excise tax regime, prices increase by more than the taxes. In the income tax regime, prices actually decline relative to the no-tax regime. In all of the examples given, flat-rate income taxation is superior to excise taxation in terms of welfare.


Public Good Equilibrium Model General Equilibrium Welfare Effect General Equilibrium Model 
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Copyright information

© Atlantic Economic Society 1995

Authors and Affiliations

  • Clarence C. Morrison
    • 1
  1. 1.Indiana UniversityUSA

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