Consumption smoothing and the measured regressivity of consumption taxes
AbstractIn this article, we address two questions. First, how will a move to pure consumption taxation matter for aggregate outcomes? Second, how regressive are consumption taxes? We find as follows. First, a move to a consumption tax will increase savings taken into retirement but will not alter either labor supply or consumption variability substantially. Second, we show that regressivity is a measure that is quantitatively sensitive to the frequency of income being used. In particular, we show that when measures of tax incidence are based on annual income, successful consumption smoothing leads to the appearance of high regressivity. Our preferred measure, which is based on lifetime earnings, shows that consumption taxes are proportional taxes.
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.
Bibliographic InfoArticle provided by Federal Reserve Bank of Richmond in its journal Economic Quarterly.
Volume (Year): (2009)
Issue (Month): Win ()
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.:
- Richard Blundell & Luigi Pistaferri & Ian Preston, 2008.
"Consumption Inequality and Partial Insurance,"
American Economic Review,
American Economic Association, vol. 98(5), pages 1887-1921, December.
- Kartik B. Athreya & Andrea L. Waddle, 2007. "Implications of some alternatives to capital income taxation," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 31-55.
- Fatih Guvenen, 2007.
"Learning Your Earning: Are Labor Income Shocks Really Very Persistent?,"
American Economic Review,
American Economic Association, vol. 97(3), pages 687-712, June.
- Fatih Guvenen, 2006. "Learning your earning: are labor income shocks really very persistent?," Discussion Paper / Institute for Empirical Macroeconomics 145, Federal Reserve Bank of Minneapolis.
- Fatih Guvenen, 2005. "Learning Your Earning: Are Labor Income Shocks Really Very Persistent?," Macroeconomics 0507004, EconWPA.
- Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002.
"Consumption Over the Life Cycle,"
Econometric Society, vol. 70(1), pages 47-89, January.
- Gourinchas, Pierre-Olivier & Parker, Jonathan A, 2000. "Consumption Over the Life-Cycle," CEPR Discussion Papers 2345, C.E.P.R. Discussion Papers.
- Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
- Storesletten, Kjetil & Telmer, Chris & Yaron, Amir, 2002.
"Consumption and Risk Sharing Over the Life Cycle,"
702, Stockholm University, Institute for International Economic Studies.
- Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2000. "Consumption and Risk Sharing Over the Life Cycle," NBER Working Papers 7995, National Bureau of Economic Research, Inc.
- Kjetil Storesletten & Chris Telmer & Amir Yaron, 1997. "Consumption and risk sharing over the life cycle," GSIA Working Papers 228, Carnegie Mellon University, Tepper School of Business.
- Andrew Atkeson & V.V. Chari & Patrick J. Kehoe, 1999. "Taxing capital income: a bad idea," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-17.
- Suits, Daniel B, 1977. "Measurement of Tax Progressivity," American Economic Review, American Economic Association, vol. 67(4), pages 747-52, September.
- Fuster, Luisa & Imrohoroglu, Ayse & Imrohoroglu, Selahattin, 2008.
"Altruism, incomplete markets, and tax reform,"
Journal of Monetary Economics,
Elsevier, vol. 55(1), pages 65-90, January.
- Josep Pijoan-Mas, 2003.
"Precautionary Savings Or Working Longer Hours?,"
- Attanasio, Orazio P, et al, 1999.
"Humps and Bumps in Lifetime Consumption,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 17(1), pages 22-35, January.
- Orazio P. Attanasio & James Banks & Costas Meghir & Guglielmo Weber, 1995. "Humps and Bumps in Lifetime Consumption," NBER Working Papers 5350, National Bureau of Economic Research, Inc.
- Orazio Attanasio & James Banks & Costas Meghir & Guglielmo Weber, 1995. "Humps and bumps in lifetime consumption," IFS Working Papers W95/14, Institute for Fiscal Studies.
- Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
- Fullerton, Don & Rogers, Diane Lim, 1991. "Lifetime Versus Annual Perspectives on Tax Incidence," National Tax Journal, National Tax Association, vol. 44(3), pages 277-87, September.
- 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.
- Shinichi Nishiyama & Kent Smetters, 2005. "Consumption Taxes and Economic Efficiency with Idiosyncratic Wage Shocks," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1088-1115, October.
- Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
- Athreya, Kartik B., 2008. "Default, insurance, and debt over the life-cycle," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 752-774, May.
- Andres Erosa & Martin Gervais, 2001. "Optimal taxation in infinitely-lived agent and overlapping generations models : a review," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 23-44.
- Artheya, Kartik & Reilly, Devin & Simpson, Nicole B., 2014.
"Single Mothers and the Earned Income Tax Credit: Insurance Without Disincentives?,"
14-11, Federal Reserve Bank of Richmond.
- Athreya, Kartik & Reilly, Devin & Simpson, Nicole B., 2014. "Single Mothers and the Earned Income Tax Credit: Insurance Without Disincentives?," IZA Discussion Papers 8114, Institute for the Study of Labor (IZA).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (William Perkins).
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.