One difficulty confronting Harberger's celebrated model of the corporate income tax is how to treat noncorporate production in primarily corporate sectors and corporate production in primarily noncorporate sectors. The paper presents a two-good model with corporate and noncorporate production of both goods. The incidence of corporate tax in our mutual production model can differ markedly from that in the Harberger model. The difference between the two models in deadweight loss is also striking, with losses in the mutual production model many times larger than those in the Harberger model.

One difficulty confronting Harberger's celebrated model of the corporate income tax is how to treat noncorporate production in primarily corporate sectors and corporate production in primarily noncorporate sectors. The paper presents a two-good model with corporate and noncorporate production of both goods. The incidence of corporate tax in our mutual production model can differ markedly from that in the Harberger model. The difference between the two models in deadweight loss is also striking, with losses in the mutual production model many times larger than those in the Harberger model.