A recently constructed numerical general equilibrium model of domestic and foreign trade activity for the United States, the (nine-member) EEC, and Japan is used to analyze the effects of removing distortions in domestic factor taxes, taking into account international trade flows. As is conventional in the general equilibrium tax literature, corporate and property taxes are treated as ad volorem taxes on capital use by industry and social security taxes as ad valorem taxes on labor use by industry. National accounts sources are used both to obtain model equivalent tax rates by trading area and to construct a benchmark data set with which to estimate the model. Results suggest that under some assumptions current factor tax structures can produce significant terms-of-trade gains, and in the U.S. case results show welfare losses occurring from the removal of existing distortions. This result contrasts with conventional closed economy analysis of distorting factor trades and is explained by national terms-of-trade losses which more than outweigh the gains from removal of domestic distortions. The policy significance of this and other findings is discussed.

A recently constructed numerical general equilibrium model of domestic and foreign trade activity for the United States, the (nine-member) EEC, and Japan is used to analyze the effects of removing distortions in domestic factor taxes, taking into account international trade flows. As is conventional in the general equilibrium tax literature, corporate and property taxes are treated as ad volorem taxes on capital use by industry and social security taxes as ad valorem taxes on labor use by industry. National accounts sources are used both to obtain model equivalent tax rates by trading area and to construct a benchmark data set with which to estimate the model. Results suggest that under some assumptions current factor tax structures can produce significant terms-of-trade gains, and in the U.S. case results show welfare losses occurring from the removal of existing distortions. This result contrasts with conventional closed economy analysis of distorting factor trades and is explained by national terms-of-trade losses which more than outweigh the gains from removal of domestic distortions. The policy significance of this and other findings is discussed.

Under a progressive income tax, conventional wisdom is that taxing individuals rather than households is preferred from an efficiency point of view. The reason is that secondary workers, whose labor supply elasticity is high, will be taxed at a lower marginal rate than primary workers, whose labor supply elasticity is low. Here, we argue that once household production is taken into account, things are more complicated since tax design should also not distort the input of family members' time in household production. Factor input distortions as well as Ramsey considerations thus need to enter the choice of the tax unit. We provide a numerical example of an economy for which a move from an individual to a household basis in the income tax can be efficiency improving. We then use a general equilibrium model, parameterized using Australian tax rates and data, whose results clearly show that welfare gains can occur under changes from an individual to a household basis for an existing income tax. Our results thus challenge conventional wisdom and suggest that household unit taxation deserves more sympathetic consideration than is currently the case.

This paper presents a method for assessing the relative importance of price increases and strengthened individual incentives due to the introduction of the responsibility system for the post-1978 increase in China's agricultural productivity. Data on post-1978 Chinese agricultural performance suggest that a little over three-quarters of the measured productivity increase is due to payment system changes and the remainder to price increases. We also use our method to calculate incentive indices, giving an estimate of the fraction of their marginal product that peasants received under the pre-1978 regime.

This paper presents a method for assessing the relative importance of price increases and strengthened individual incentives due to the introduction of the responsibility system for the post-1978 increase in China's agricultural productivity. Data on post-1978 Chinese agricultural performance suggest that a little over three-quarters of the measured productivity increase is due to payment system changes and the remainder to price increases. The authors also use their method to calculate incentive indices, giving an estimate of the fraction of their marginal product that peasants received under the pre-1978 regime.

Under a progressive income tax, conventional wisdom is that taxing individuals rather than households is preferred from an efficiency point of view. The reason is that secondary workers, whose labor supply elasticity is high, will be taxed at a lower marginal rate than primary workers, whose labor supply elasticity is low. Here, we argue that once household production is taken into account, things are more complicated since tax design should also not distort the input of family members' time in household production. Factor input distortions as well as Ramsey considerations thus need to enter the choice of the tax unit. We provide a numerical example of an economy for which a move from an individual to a household basis in the income tax can be efficiency improving. We then use a general equilibrium model, parameterized using Australian tax rates and data, whose results clearly show that welfare gains can occur under changes from an individual to a household basis for an existing income tax. Our results thus challenge conventional wisdom and suggest that household unit taxation deserves more sympathetic consideration than is currently the case.