Abstract
Price effects of an output tax in sector 1 and an equivalent production subsidy in the second industry are analyzed in a general equilibrium model. Each commodity satisfies final demand and uses two primary inputs and the other good as an intermediate product. Production coefficients are variable and demand is elastic. In a Leontief model with fixed coefficients, Metzler showed that price of the taxed good will rise and price of the subsidized good will fall. This result generally holds under less restrictive conditions also although it is sometimes reversed. How the topic relates to the tax-incidence literature is also discussed.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
