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Published October 1981 | Published
Journal Article Open

Uncertainty and the Theory of Tax Incidence in a Stock Market Economy

Abstract

[Introduction] Commencing with Harberger's [1962] classic paper, a number of studies have analyzed the incidence of taxation in the context of a deterministic, two-sector, two-factor general equilibrium model. Recently, R. N. Batra [1975] and R. A. Ratti and P. Shome [1977a, 1977b] have reexamined the robustness of these deterministic results for the case in which production uncertainty is incorporated into the model. By using "entrepreneurial" models in which the firm is assumed to maximize the expected utility of profits, they find that the incidence of taxes depends on the preferences and probability assessments of the entrepreneur, and in general, the deterministic results no longer obtain.

Additional Information

Manuscript received September 4, 1979; revised March 31, 1981. The first author's work has been supported by NSF Grant #SOC 77-07251. We wish to thank Frank Milne and Assaf Razin for their helpful comments on earlier versions of this paper.

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