Public Finance, 3rd Edition

The Harberger Analysis

Arnold Harberger's 1962 analysis of the incidence of corporate income tax stands as a landmark without rival in the literature on tax incidence theory. Its contributions were twofold. In the first place, his study firmly established the fundamental principle that incidence analysis, properly conceived, requires a full general equilibrium model of the underlying economy. Second, Harberger developed the methodology for measuring incidence in terms of changes in actual general equilibrium consumer and producer prices, focusing primarily on changes in factor prices. Although, as noted above, this measure cannot possibly be the definitive measure of tax incidence, no other single measure is infallible either. Many tax theorists ...