Welfare impacts of equal-yield tax reforms in the UK economy

Keshab R. Bhattarai
2007 Applied Economics  
We use a multisectoral dynamic general equilibrium tax model with and without announcement effects in open and closed capital markets to evaluate efficiency gains and transitional effects from equal yield tax reforms for seven different taxes in the UK economy. We are able to distinguish empirically between more distortionary and less distortionary taxes. The impacts of an unanticipated tax reform on investment, capital accumulation, output and employment are less than those of anticipated tax
more » ... of anticipated tax reforms because producers, traders, investors and the government are more capable of adjusting their economic behaviour than the households when tax announcements are made in advance. In equal yield tax experiments welfare gains up to 1.4 percent of base year GDP can occur by removing distortions in taxes. Welfare loss of up to 2.05 percent of it can happen if a less distortionary tax, such as the labour income tax is replaced by more distortionary taxes. These simulation results are robust to whether the capital market is closed or open. . t s c c c J R r J r r J r J W
doi:10.1080/00036840600571100 fatcat:rzhi5ym7pbcafanharz2n6tjey