The Welfare Cost of Distortions in the United States Tax System: A General Equilibrium Approach

Using a general equilibrium model of the United States economy,we examine the combined welfare cost of all taxes in the U.S. revenue system.We find that the welfare losses caused by distortionary taxation can be very large, both on average and at the margin.The marginal welfare loss to consumers from raising an additional dollar of revenue is in the range of 34 cents to 48 cents, depending on certain elasticities. This has very important implications for cost-benefit analysis.If a public project must be financed by distortionary taxes which cause dead-weight loss, this excess burden must be taken into account when we decide whether to undertake the project. Our calculations indicate that the marginal deadweight loss is between one-third and one-half of marginal revenues. This large wedge could cause us to approve many fewer projects than we would approve if we were to use the simple condition that the sum of the marginal rates of substitution should equal the marginal rate of transformation.The average deadweight loss per dollar of revenue is smaller than the marginal deadweight loss, but it is still substantial. We estimate that the present value of the gain from replacing the distortionary tax system with certain lump sum taxes would be in the range of $1.8 trillion to$3.1 trillion,or 13 cents to 22 cents per dollar of revenue. The gains would be about 60 percent as great if the existing system were replaced with a proportional income tax. Replacing the existing system with a consumption-type value-added tax would give even greater gains than those from switching to a proportional income tax.

Replacing the U.S. Income Tax with a Progressive Consumption Tax: A Sequenced General Equilibrium Approach

This paper examines the welfare consequences of changing the current U.S. income tax system to a progressive consumption tax. We compute a sequence of single period equilibria in which savings decisions depend on the expected future return to capital. In the presence of existing income taxes, the U.S. economy is assumed to lie on a balanced growth path. With the change to a consumption tax, individuals save more and initially consume less. As the capital stock grows, consumption eventually overtakes that of the original path, and the economy approaches the new balanced growth path with higher consumption and a greater capital stock. Both the transition and the balanced growth paths enter our welfare evaluations. We find that the discounted present value of the stream of net gains is approximately $650 billion in 1973 dollars, just over one percent of the discounted present value of national income. Larger gains occur if further reform of capital income taxation accompanies the change. We examine the sensitivity of the results, both to the design of the consumption tax and to the values of elasticity and other parameters. The paper also contains estimates of the time required to adjust from one growth path to the other.

Echocardiography service provision in New Zealand: capacity modelling the cardiac sonographer workforce

Aim: Regional disparity in both utilisation and the cardiac sonographer workforce has previously been identified. We sought to model the capacity of the cardiac sonographer workforce at a national and District Health Board level to better understand these regional differences. Method: In 2013, surveys were distributed to 18 hospitals who employ cardiac sonographers (return rate 100%). Questions related to cardiac sonographer demographics, echo utilisation and workflow. Actual clinical capacity was calculated from scan duration and annual scan volumes. New Zealand national actual capacity was compared to predicted capacity from three international models. Potential clinical capacity was calculated from the workforce size in fulltime equivalent (FTE) and clinical availability. Results: In New Zealand, scan duration and population-based clinical capacity varies between centres. The New Zealand capacity is similar to the UK 30:70 model, and consistently less than the US model for all scan types. There are marked regional differences in potential versus actual capacity, with 10/16 DHBs demonstrating excess potential capacity. Conclusion: There is regional disparity in the capacity of the cardiac sonographer workforce, which appears to be strongly related to scan duration. Workforce capacity modelling should be used with need and demand modelling to plan adequate levels of service provision