The Economic Burden of Taxation - Free to Choose Conference Proceedings - Dallas Fed
نویسنده
چکیده
he many burdens of government include those attributable to taxation, monetary policy, regulations, and restrictions on civil liberties. This paper is specific to the economic burden of taxation, without in any way minimizing the other types of burdens. The economic burden of taxation is a function of three conditions: the level of the average tax rate, the relation of the marginal tax rate to the average tax rate, and the response of the tax base to changes in the marginal tax rate. 2 Start with the basic relation of the size of the economy to the two major fiscal decisions: (1) Y = aG b (1 – R) c where Y = GDP per potential worker, G = expenditures for government services (excluding defense) per potential worker, and R = the average tax rate. The two major fiscal decisions, of course, are the level of expenditures for government services (excluding defense) and the level of the average tax rate. This equation is expressed in terms of output per potential worker to capture the effects of G and (1 – R) on both hours worked per potential worker and on output per worker hour. The implicit assumption in this equation is that government expenditures for defense, transfer payments, interest payments, and subsidies have no significant net effect on the output per potential worker; there is ample evidence, of course, that most transfer payments reduce output per potential worker. The elasticity c, as I will demonstrate, reflects the combined effects of T
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