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Tax distortions in Sweden and the United States

Tax distortions in Sweden and the United States
Tax distortions in Sweden and the United States
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.

stochastic distortionary taxation, welfare costs
0014-2921
711-729
Klein, Paul
feea4bea-ca95-41ce-b72c-92b7d05247b1
Jonsson, Magnus
e800620d-3964-417a-8f35-3f7dab8e3a6a
Klein, Paul
feea4bea-ca95-41ce-b72c-92b7d05247b1
Jonsson, Magnus
e800620d-3964-417a-8f35-3f7dab8e3a6a

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).

Record type: Article

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.

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More information

Published date: August 2003
Keywords: stochastic distortionary taxation, welfare costs

Identifiers

Local EPrints ID: 188417
URI: http://eprints.soton.ac.uk/id/eprint/188417
ISSN: 0014-2921
PURE UUID: dcad3acb-55ec-4a36-8c45-db999761a987

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Date deposited: 03 Jun 2011 10:57
Last modified: 14 Mar 2024 03:31

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Contributors

Author: Paul Klein
Author: Magnus Jonsson

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