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Consumption Taxes and Redistribution

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  • Isabel Correia

Abstract

This study considers replacing the current US tax system with only a flat tax consumption tax, showing, in contrast to the literature, that such a reform leads to a decline in inequality and increase in welfare for the welfare-poor. The results are obtained from a simple model that identifies the main channels through which the reform affects the economy. It is shown also that these novel results depend on the distribution of wealth and earnings, and that they hold for the relevant empirical distributions. (JEL D31, H23, H25)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.4.1673
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File URL: http://www.aeaweb.org/aer/data/sept2010/20070451_data.zip
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 100 (2010)
Issue (Month): 4 (September)
Pages: 1673-94

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Handle: RePEc:aea:aecrev:v:100:y:2010:i:4:p:1673-94

Note: DOI: 10.1257/aer.100.4.1673
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References

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  1. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  2. Correia, Isabel H., 1999. "On the efficiency and equity trade-off," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 581-603, December.
  3. Isabel Correia & Juan Pablo Nicolini & Pedro Teles, 2008. "Optimal fiscal and monetary policy: equivalence results," Staff Report 403, Federal Reserve Bank of Minneapolis.
  4. Gustavo Ventura, . "Flat Tax Reform: A Quantitative Exploration," Computing in Economics and Finance 1997 172, Society for Computational Economics.
  5. David Altig & Alan J. Auerbach & Laurence J. Kotlikoff & Kent A. Smetters & Jan Walliser, 1997. "Simulating U.S. tax reform," Working Paper 9712, Federal Reserve Bank of Cleveland.
  6. Daniel R. Feenberg & Andrew W. Mitrusi & James M. Poterba, 1997. "Distributional Effects of Adopting a National Retail Sales Tax," NBER Chapters, in: Tax Policy and the Economy, Volume 11, pages 49-90 National Bureau of Economic Research, Inc.
  7. Raquel Fernandez & Richard Rogerson, 1999. "Equity and Resources: An Analysis of Education Finance Systems," NBER Working Papers 7111, National Bureau of Economic Research, Inc.
  8. Isabel H. Correia, 1999. "Fiscal rules of income transformation," Economic Theory, Springer, vol. 13(1), pages 199-205.
  9. ColemanII, Wilbur John, 2000. "Welfare and optimum dynamic taxation of consumption and income," Journal of Public Economics, Elsevier, vol. 76(1), pages 1-39, April.
  10. Santiago Budria Rodriguez & Javier Diaz-Gimenez & Vincenzo Quadrini & Jose-Victor Rior-Rull, 2002. "Updated facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-35.
  11. William M. Gentry & R. Glenn Hubbard, 1997. "Distributional Implications of Introducing a Broad-Based Consumption Tax," NBER Chapters, in: Tax Policy and the Economy, Volume 11, pages 1-48 National Bureau of Economic Research, Inc.
  12. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1996. "Are consumption taxes really better than income taxes?," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 475-503, June.
  13. Jorgenson, Dale W & Wilcoxen, Peter J, 1997. "The Long-Run Dynamics of Fundamental Tax Reform," American Economic Review, American Economic Association, vol. 87(2), pages 126-32, May.
  14. Helpman, Elhanan & Sadka, Efraim, 1982. "Consumption versus Wage Taxation," The Quarterly Journal of Economics, MIT Press, vol. 97(2), pages 363-72, May.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Are consumption taxes more equitable?
    by Economic Logician in Economic Logic on 2010-12-29 16:25:00
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Cited by:
  1. Anagnostopoulos, Alexis & Li, Qian, 2013. "Consumption taxes and precautionary savings," Economics Letters, Elsevier, vol. 119(3), pages 238-242.
  2. Fernando Alexandre & Luís Aguiar Conraria & Pedro Bação & Miguel Portela, 2011. "A Poupança em Portugal," GEMF Working Papers 2011-19, GEMF - Faculdade de Economia, Universidade de Coimbra.
  3. Luigi, Bernardi, 2011. "Economic crisis and taxation in Europe," MPRA Paper 31007, University Library of Munich, Germany.
  4. George Economides & Apostolis Philippopoulos, 2012. "Are User Fees Really Regressive?," CESifo Working Paper Series 3875, CESifo Group Munich.
  5. Isabel Horta Correia, 2007. "The Effects on Equity of an Increase in the Value-Added Tax," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  6. Isabel Horta Correia, 2010. "Taxation and Globalization," Working Papers w201020, Banco de Portugal, Economics and Research Department.
  7. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2014. "Optimal Tax Progressivity: An Analytical Framework," NBER Working Papers 19899, National Bureau of Economic Research, Inc.

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