A General Equilibrium Model of Taxation that Uses Micro-Unit Data: Withan Application to the Impact of Instituting a Flat-Rate Income Tax

34 Pages Posted: 9 Mar 2004 Last revised: 1 Jul 2010

See all articles by Joel B. Slemrod

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Date Written: September 1984

Abstract

This paper develops a methodology in integrating the information from a micro-unit data file of tax returns into the framework of a general equilibrium model of taxation with endogenous financial behavior. It discusses how the available information on capital income flows can be used to impute portfolios to households, and how these portfolios and the other observed characteristics of the households can be made consistent with expected utility maximization. In order to illustrate the value of this methodology, it is applied to a study of the general equilibrium impact of instituting a flat-rate income tax system. The analysis reveals that there would be substantial changes in the pattern of rates of return and the distribution of asset ownership.The sectoral allocation of capital does not, though, change substantially. The micro-unit data base shows that, in general, lower-income households are worse off and the higher-income households are better off, although there is substantial dispersion of welfare change within income groups. Because these results rest on a very simple model of the economy and a particular data imputation procedure and parameterization, they should not be taken literally as a guide to policy decisions. Nevertheless, they do indicate that substantial insight can be provided by integrating micro-unit data with general equilibrium tax modeling.

Suggested Citation

Slemrod, Joel B., A General Equilibrium Model of Taxation that Uses Micro-Unit Data: Withan Application to the Impact of Instituting a Flat-Rate Income Tax (September 1984). NBER Working Paper No. w1461. Available at SSRN: https://ssrn.com/abstract=334287

Joel B. Slemrod (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Room R5396
Ann Arbor, MI 48109-1234
United States
734-936-3914 (Phone)
734-763-4032 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
22
Abstract Views
560
PlumX Metrics