1988 Articles

Taxation, Information, and Economic Organization

Stiglitz, Joseph E.; Wolfson, Mark A.

The article comments on taxation. Taxes can only be imposed on the basis of information that is available to the government. There are fundamental asymmetries in the information that individuals have and that governments have. Individuals and firms can be selective in the information that they make available. The effect of a tax cannot be analyzed in isolation, only the effects of a tax system, the full set of taxes which are levied, can be assessed. Moreover, one has to look beneath the surface and at the full general equilibrium consequences of the tax system. The fact that the government imposes half of the social security tax on employers and half on employees does not mean that half of the tax is really borne by employers. The fact that interest on state and local bonds is tax exempt does not mean that it is those who buy these bonds who get most of the benefits of this provision. The consequences of the corporation income tax depend on whether or not capital gains receive special treatment. The methods by which taxes were avoided were variants and generalizations of some commonly employed tax avoidance devices.