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

Bhattarai, Keshab R.

Authors



Abstract

A multisectoral dynamic general equilibrium tax model with and without announcement effects for open and closed capital markets is used to evaluate efficiency gains and transitional effects from equal-yield tax reforms for seven different taxes in the UK economy. Impacts of an unanticipated tax reform on investment, capital accumulation, output and employment are compared to those of anticipated tax reforms. Households, producers, traders, investors and the government are found to be more capable of adjusting their economic behaviour when tax announcements are made in advance. In equal-yield tax experiments welfare gains up to 1.4% of base year GDP can occur by removing distortions in taxes. Welfare loss of up to 2.05% of it can happen if a less distortionary tax, such as the labour income tax is replaced by more distortionary taxes. These simulation results hold whether the capital markets are closed or open.

Citation

Bhattarai, K. R. (2007). Welfare impacts of equal-yield tax reforms in the UK economy. Applied economics, 39(12), 1545-1563. https://doi.org/10.1080/00036840600571100

Journal Article Type Article
Online Publication Date Apr 4, 2011
Publication Date 2007
Deposit Date Feb 16, 2021
Journal Applied Economics
Print ISSN 0003-6846
Electronic ISSN 1466-4283
Publisher Routledge
Peer Reviewed Peer Reviewed
Volume 39
Issue 12
Pages 1545-1563
DOI https://doi.org/10.1080/00036840600571100
Public URL https://hull-repository.worktribe.com/output/3564549