In this paper we propose a decomposition of the Harberger expression for the incidence of the corporate income tax into ‘commodity price distortion’ and ‘factor price distortion’ effects. By applying Harberger's estimates of the parameters for the U.S. economy, we will demonstrate that the factor price distortion effect, which has an extremely simple formal expression, explains 115 percent of the total effect of the tax change on the rate of return. This suggests that the commodity price distortion effect may be relatively unimportant in explaining the tax incidence.
A Decomposition of the Harberger Expression for Tax IncidenceTatsuo Hatta and John C. Haltiwanger ,
3( 19 )
Journal of Public Economics