Modeling Distortionary Taxation

There has been a lot of discussion recently regarding the macroeconomic consequences of a distortionary taxation system. However the way this distortionary taxation scheme or instrument is modeled in macroeconomic analysis, as well as the ability of these models to capture the effects implied by this distortionary taxation system, is subject to criticism. This work provides a formal analysis in an attempt to build a methodological tool (i.e. a functional form), in order to capture the distortionary consequences of the tax system. This tool could be a useful instrument in economic analysis regarding the effects of a distortionary taxation system, and its relation to the other macroeconomic variables, like for example debt, deficit, and inflation