The Comparative Dynamics of Tax Changes: A Non-steady State Analysis

The dynamic path of accumulation in a neo-classical economy can be described by a differential equation in the time rate of change of the per capita capital stock. In the theory of differential equations there is a technique for examining the change of the solution of a differential equation from a differential change in a parameter. This technique is applied to the effect of tax changes on the path of accumulation and, as a consequence, on factor prices. We therefore have an analysis of tax incidence in a dynamic economy out of the steady state.