Tax Incidence In Dynamic Economies With Externalities And Endogenous Labor Supply

This paper examines the long-run incidence of factor income taxes and expenditure taxes in an infinitely lived representative agent growth model which allows both for production externalities and for endogenous labor supply. The novelty of this paper is its investigating of how the long-run incidence of taxes is affected by indeterminacy of equilibria that is caused mainly by nonseparable preferences between consumption and leisure. The authors show that the effects of the taxes on steady state welfare as well as the steady state levels of consumption, capital, and employment are all negative regardless of whether a steady state is determinate or indeterminate in an exogenous growth model.