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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

Abstract

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.

Keywords

Public Good Equilibrium Model General Equilibrium Welfare Effect General Equilibrium Model 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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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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