ABSTRACT
This chapter discusses the incentive effects of taxes on provision of labor services and on saving. The example of effluent taxes constitutes a foot in the door that opens up other issues. Benefit-cost analysis may provide the framework to set the level of effluent taxes, but the benefits and costs themselves are in part matters of preference. Tax neutrality, then, is the baseline starting point for analysis of the ideal tax system. The tax-exempt or tax-favored sector in the United States is very large. Most educational services, services provided by religious organizations, and many medical services are quantitatively significant examples. Estimates of effects from taxes, transfers, and deficit finance might be a bit more trustworthy. These items do not affect GDP directly, but only through their effects on behavior of private agents.
