Replacing the U.S. income tax with a progressive consumption tax : A sequenced general equilibrium approach
AbstractThis paper examines the welfare consequences of changing the current U.S. income tax system to a progressive consumption tax. We compute a sequence of single period equilibria in which savings decisions depend on the expected future return to capital. In the presence of existing income taxes, the U.S. economy is assumed to lie on a balanced growth path. With the change to a consumption tax, individuals save more and initially consume less. As the capital stock grows, consumption eventually overtakes that of the original path, and the economy approaches the new balanced growth path with higher consumption and a greater capital stock. Both the transition and the balanced growth paths enter our welfare evaluations. We find that the discounted present value of the stream of net gains is approximately $650 billion in 1973 dollars, just over one percent of the discounted present value of national income. Larger gains occur if further reform of capital income taxation accompanies the change. We examine the sensitivity of the results, both to the design of the consumption tax and to the values of elasticity and other parameters. The paper also contains estimates of the time required to adjust from one growth path to the other.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Public Economics.
Volume (Year): 20 (1983)
Issue (Month): 1 (February)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505578
Other versions of this item:
- Don Fullerton & John B. Shoven & John Whalley, 1983. "Replacing the U.S. Income Tax with a Progressive Consumption Tax: A Sequenced General Equilibrium Approach," NBER Working Papers 0892, National Bureau of Economic Research, Inc.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Feldstein, Martin S, 1978.
"The Welfare Cost of Capital Income Taxation,"
Journal of Political Economy,
University of Chicago Press, vol. 86(2), pages S29-51, April.
- Boadway, Robin, 1979. "Long-run Tax Incidence: A Comparative Dynamic Approach," Review of Economic Studies, Wiley Blackwell, vol. 46(3), pages 505-11, July.
- Summers, Lawrence H, 1981. "Capital Taxation and Accumulation in a Life Cycle Growth Model," American Economic Review, American Economic Association, vol. 71(4), pages 533-44, September.
- Feldstein, Martin S, 1974. "Incidence of a Capital Income Tax in a Growing Economy with Variable Savings Rates," Review of Economic Studies, Wiley Blackwell, vol. 41(4), pages 505-13, October.
- Bernheim, B Douglas, 1981. "A Note on Dynamic Tax Incidence," The Quarterly Journal of Economics, MIT Press, vol. 96(4), pages 705-23, November.
- Robert E. Hall, 1987. "Consumption," NBER Working Papers 2265, National Bureau of Economic Research, Inc.
- Atkinson, Anthony B, 1969. "The Timescale of Economic Models: How Long Is the Long Run?," Review of Economic Studies, Wiley Blackwell, vol. 36(106), pages 137-52, April.
- Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
- Lewis, H G, 1975. "Economics of Time and Labor Supply," American Economic Review, American Economic Association, vol. 65(2), pages 29-34, May.
- E. Philip Howrey & Saul H. Hymans, 1978. "The Measurement and Determination of Loanable-Funds Saving," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(3), pages 655-685.
- Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "General Equilibrium Analysis of Tax Policies," NBER Chapters, in: A General Equilibrium Model for Tax Policy Evaluation, pages 6-24 National Bureau of Economic Research, Inc.
- Levhari, David & Sheshinski, Eytan, 1972. "Lifetime Excess Burden of a Tax," Journal of Political Economy, University of Chicago Press, vol. 80(1), pages 139-47, Jan.-Feb..
- Bröcker, Johannes & Schneider, Martin, 1999.
"How does economic development in eastern Europe affect Austria's regions? A multiregional general equilibrium framework,"
1/99, Dresden University of Technology, Faculty of Transportation and Traffic Sciences "Friedrich List", Institute for Transport and Economics.
- Johannes Bröcker & Martin Schneider, 2002. "How Does Economic Development in Eastern Europe Affect Austria's Regions? A Multiregional General Equilibrium Framework," Journal of Regional Science, Wiley Blackwell, vol. 42(2), pages 257-285.
- Gordon, Roger H., 1989. "Notes on cash - flow taxation," Policy Research Working Paper Series 210, The World Bank.
- James Alm & Asmaa El-Ganainy, 2012.
"Value-added Taxation and Consumption,"
1203, Tulane University, Department of Economics.
- Don Fullerton, 1984. "Which Effective Tax Rate?," NBER Working Papers 1123, National Bureau of Economic Research, Inc.
- Lin, Shuanglin, 1999. "Tax reform and external balance," Journal of International Money and Finance, Elsevier, vol. 18(6), pages 891-909, December.
- Ahmed, S., 2004. "Modelling corporate tax liabilities using company accounts: a new framework," Cambridge Working Papers in Economics 0412, Faculty of Economics, University of Cambridge.
- Timothy J. Kehoe, 1996. "Social accounting matrices and applied general equilibrium models," Working Papers 563, Federal Reserve Bank of Minneapolis.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.