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Indirect Tax Exemptions and the Distribution ot Lifetime Income: A Simulation Analysis

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  • LISA CAMERON
  • JOHN CREEDY

Abstract

This paper uses a simulation model to compare the lifetime consequences of a revenue neutral partial shift towards a consumption tax, involving exemptions, with its cross‐sectional effects. Exemptions of goods consumed proportionately more by lower income groups reduce the inequality of the distribution of net lifetime consumption by more than in the cross‐sectional case. However, the tax shift increases lifetime inequality by more than it increases cross‐sectional inequality, and the net effect is that exemptions cannot compensate for the income tax change. Concern with inequality is most appropriately handled by raising transfer payments rather than introducing exemptions.

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  • Lisa Cameron & John Creedy, 1995. "Indirect Tax Exemptions and the Distribution ot Lifetime Income: A Simulation Analysis," The Economic Record, The Economic Society of Australia, vol. 71(1), pages 77-87, March.
    • Handle: RePEc:bla:ecorec:v:71:y:1995:i:1:p:77-87
    DOI: 10.1111/j.1475-4932.1995.tb01873.x
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    References listed on IDEAS

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    Cited by:

    1. John Creedy & Guyonne Kalb, 2005. "Behavioural Microsimulation Modelling for Tax Policy Analysis in Australia: Experience and Prospects," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 8(1), pages 73-110, March.
    2. Stefan Fölster, 1999. "Social Insurance Based on Personal Savings," The Economic Record, The Economic Society of Australia, vol. 75(1), pages 5-18, March.
    3. John Creedy & Guyonne Kalb, 2005. "Behavioural Microsimulation Modelling With the Melbourne Institute Tax and Transfer Simulator(MITTS) : Uses and Extensions," Department of Economics - Working Papers Series 932, The University of Melbourne.
    4. M.E. Atkinson & John Creedy & D.M. Knox, 1996. "Alternative Retirement Income Strategies: A Cohort Analysis of Lifetime Redistribution," The Economic Record, The Economic Society of Australia, vol. 72(217), pages 97-106, June.

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