Tax distortions in Sweden and the United States


Klein, Paul and Jonsson, Magnus (2003) Tax distortions in Sweden and the United States. European Economic Review, 47, (4), 711-729. (doi:10.1016/S0014-2921(02)00288-X).

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Description/Abstract

We calculate the welfare costs of distortionary taxation (including inflation) in models calibrated for the United States and Sweden. The welfare costs are calculated using comparative steady state as well as dynamic analysis, where we take the costs of transition from the distorted to the optimal steady state into account. We also calculate the welfare costs of adding stochastic fluctuations. Our main finding is that the total welfare costs of the distortionary taxes including the distortionary effects of inflation are about five times higher in Sweden than in the United States. Meanwhile, stochastic fluctuations in policy turn out to have a relatively small impact on welfare.

Item Type: Article
ISSNs: 0014-2921 (print)
Keywords: stochastic distortionary taxation, welfare costs
Subjects: H Social Sciences > HB Economic Theory
J Political Science > JA Political science (General)
Divisions: University Structure - Pre August 2011 > School of Social Sciences
ePrint ID: 188417
Date Deposited: 03 Jun 2011 10:57
Last Modified: 27 Mar 2014 19:42
URI: http://eprints.soton.ac.uk/id/eprint/188417

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