Selective factor taxes under imperfect mobility: the Harberger model after thirty years

Abstract

This paper characterizes the role of capital and labor mobility in the shifting of capital taxes in Harberger-type 2X2 general-equilibrium model with partially-mobile factors. We first provide and examine an intuitive decomposition of the incidence of a selective capital tax into a "specificity effect" and a "mobility effect". Then we extend Harberger's incidence theorems lo a partially-mobile factors context. The relevance of factor mobility differentials is examined. We also show that a surprising number of elements of Harberger's theorems carry over in the partially-mobile-factors model.