Applied tax incidence studies have concluded that the burden of the entire tax system is approximately proportional to income, a conclusion that depends critically on the assumption that sales and excise taxes are regressive. This paper shows that sales and excise taxes are progressive elements in the tax system when analyzed in a general-equilibrium model where government transfers are an important source of income. Consequently, the entire tax system is highly progressive under competitive assumptions about tax incidence. Moreover, the degree of progressivity is virtually unaffected when noncompetitive assumptions about tax incidence are employed.

Applied tax incidence studies have concluded that the burden of the entire tax system is approximately proportional to income, a conclusion that depends critically on the assumption that sales and excise taxes are regressive. This paper shows that sales and excise taxes are progressive elements in the tax system when analyzed in a general-equilibrium model where government transfers are an important source of income. Consequently, the entire tax system is highly progressive under competitive assumptions about tax incidence. Moreover, the degree of progressivity is virtually unaffected when noncompetitive assumptions about tax incidence are employed.

The marginal cost of public funds is the direct tax burden plus the marginal welfare cost produced in acquiring the tax revenue. This paper estimates that the marginal cost of public funds for taxes on labor income in the United States ranges from 1.09 to 1.16 per dollar of tax revenue, depending on the progressivity of the change in the tax structure. Thus, government expenditures must be at least 9-16 percent more productive than private expenditures to produce a net welfare gain. In addition, the total welfare cost of income taxes in 1974 is estimated at $19 billion.

The marginal cost of public funds is the direct tax burden plus the marginal welfare cost produced in acquiring the tax revenue. This paper estimates that the marginal cost of public funds for taxes on labor income in the United States ranges from 1.09 to 1.16 per dollar of tax revenue, depending on the progressivity of the change in the tax structure. Thus, government expenditures must be at least 9-16 percent more productive than private expenditures to produce a net welfare gain. In addition, the total welfare cost of income taxes in 1974 is estimated at $19 billion.

This paper develops a geometrical model for the analysis of the collective decision process known as general fund financing. The model is used to compare the outcomes produced under general fund financing and simple majority voting and to explore the comparative statics properties of general fund financing. The major conclusion is that general fund financing often produces unpredictable and paradoxical outcomes. For example, a change in the preferences of voters which would lead to increased outputs of each of two public goods under simple majority voting can produce reduced outputs of both public goods under general fund financing.

This paper uses a 1976 microdata base to estimate the marginal cost of reducing income inequality with a policy that has distributional effects similar to the present tax-transfer system. The analysis uses a simulation methodology in which only the labor supply effects are evaluated; other behavioral effects are ignored. The most striking finding is that marginal cost is quite high even for modest labor supply elasticities. For example, in the benchmark case with a weighted-average economy-wide uncompensated wage elasticity of 0.2 (and compensated elasticity of 0.31), the disposable money income of upper-income quintiles of households is depressed by 9.51 for each dollar increase in the disposable money income of lower-income quintiles. When income equivalent values that take account of the value of leisure are compared, the marginal cost for this case is estimated to be 3.49.

This paper uses a 1976 microdata base to estimate the marginal cost of reducing income inequality with a policy that has distributional effects similar to the present tax-transfer system. The analysis uses a simulation methodology in which only the labor supply effects are evaluated; other behavioral effects are ignored. The most striking finding is that marginal cost is quite high even for modest labor supply elasticities. For example, in the benchmark case with a weighted-average economy-wide uncompensated wage elasticity of 0.2 (and compensated elasticity of 0.31), the disposable money income of upper-income quintiles of households is depressed by 9.51 for each dollar increase in the disposable money income of lower-income quintiles. When income equivalent values that take account of the value of leisure are compared, the marginal cost for this case is estimated to be 3.49.