A note on taxes, prices, wages, and welfare in general equilibirium models
Changes in real wages are often used to measure welfare changes. There is a problem, however, in interpreting measures of changes in factor returns when analyzing the impact of changes in taxes — such as tariffs and indirect taxes — that operate as wedges in product and factor markets versus direct...
| Main Authors: | , |
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| Format: | Artículo preliminar |
| Language: | Inglés |
| Published: |
International Food Policy Research Institute
1999
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| Subjects: | |
| Online Access: | https://hdl.handle.net/10568/161262 |
| _version_ | 1855526169194004480 |
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| author | Robinson, Sherman Thierfelder, Karen |
| author_browse | Robinson, Sherman Thierfelder, Karen |
| author_facet | Robinson, Sherman Thierfelder, Karen |
| author_sort | Robinson, Sherman |
| collection | Repository of Agricultural Research Outputs (CGSpace) |
| description | Changes in real wages are often used to measure welfare changes. There is a problem, however, in interpreting measures of changes in factor returns when analyzing the impact of changes in taxes — such as tariffs and indirect taxes — that operate as wedges in product and factor markets versus direct taxes that do not work through the price system. One must account for both how the tax is collected and where the tax revenue goes. We sort out how a shift in tax structure will affect the real wage in a model which isolates the price, wage, revenue, and welfare effects. We start from a simple general equilibrium model which accounts for all income and expenditure flows in the economy and includes both traded and domestic goods. We analyze the impact of changes in indirect taxes and tariffs on prices and factor income and demonstrate the pitfalls of using real factor returns as a welfare indicator. There is a transfer effect on factor returns arising from any shift between indirect and direct taxes, regardless of any efficiency effects. Next, we add explicit factor markets to the model and describe the implications for income distribution in an extension of the Jones trade model. We find that the transfer effect dampens the magnification effect of a price change on factor returns, but does not reverse the Stolper-Samuelson results. |
| format | Artículo preliminar |
| id | CGSpace161262 |
| institution | CGIAR Consortium |
| language | Inglés |
| publishDate | 1999 |
| publishDateRange | 1999 |
| publishDateSort | 1999 |
| publisher | International Food Policy Research Institute |
| publisherStr | International Food Policy Research Institute |
| record_format | dspace |
| spelling | CGSpace1612622025-11-06T06:18:50Z A note on taxes, prices, wages, and welfare in general equilibirium models Robinson, Sherman Thierfelder, Karen trade policies welfare economics equilibrium theory Changes in real wages are often used to measure welfare changes. There is a problem, however, in interpreting measures of changes in factor returns when analyzing the impact of changes in taxes — such as tariffs and indirect taxes — that operate as wedges in product and factor markets versus direct taxes that do not work through the price system. One must account for both how the tax is collected and where the tax revenue goes. We sort out how a shift in tax structure will affect the real wage in a model which isolates the price, wage, revenue, and welfare effects. We start from a simple general equilibrium model which accounts for all income and expenditure flows in the economy and includes both traded and domestic goods. We analyze the impact of changes in indirect taxes and tariffs on prices and factor income and demonstrate the pitfalls of using real factor returns as a welfare indicator. There is a transfer effect on factor returns arising from any shift between indirect and direct taxes, regardless of any efficiency effects. Next, we add explicit factor markets to the model and describe the implications for income distribution in an extension of the Jones trade model. We find that the transfer effect dampens the magnification effect of a price change on factor returns, but does not reverse the Stolper-Samuelson results. 1999 2024-11-21T09:54:31Z 2024-11-21T09:54:31Z Working Paper https://hdl.handle.net/10568/161262 en Open Access application/pdf International Food Policy Research Institute Robinson, Sherman; Thierfelder, Karen. 1999. A note on taxes, prices, wages, and welfare in general equilibirium models. TMD Discussion Paper 39. https://hdl.handle.net/10568/161262 |
| spellingShingle | trade policies welfare economics equilibrium theory Robinson, Sherman Thierfelder, Karen A note on taxes, prices, wages, and welfare in general equilibirium models |
| title | A note on taxes, prices, wages, and welfare in general equilibirium models |
| title_full | A note on taxes, prices, wages, and welfare in general equilibirium models |
| title_fullStr | A note on taxes, prices, wages, and welfare in general equilibirium models |
| title_full_unstemmed | A note on taxes, prices, wages, and welfare in general equilibirium models |
| title_short | A note on taxes, prices, wages, and welfare in general equilibirium models |
| title_sort | note on taxes prices wages and welfare in general equilibirium models |
| topic | trade policies welfare economics equilibrium theory |
| url | https://hdl.handle.net/10568/161262 |
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