Abstract
In an interesting paper in this Journal, Holloway investigated the firm's response to revenue-neutral taxation under price uncertainty. In his analysis, revenue-neutral policies adjust simultaneously the marginal tax rate and the level of exemptions while keeping expected tax receipts constant. Using an assumption of nonincreasing absolute risk aversion, he concluded that a reduction in the marginal rate would cause the firm to contract output. Holloway used the 1986 Tax Reform Act as an example of a revenue-neutral policy. As a matter of fact, the act was intended to be revenue-neutral while low-
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