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Distributional Effects of Adopting a National Retail Sales Tax

In: Tax Policy and the Economy, Volume 11

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  • Daniel R. Feenberg
  • Andrew W. Mitrusi
  • James M. Poterba

Abstract

This paper describes a new household-level data file based on merged information from the IRS Individual Tax File, the Current Population Survey, the National Medical Expenditure Survey, and the Consumer Expenditure Survey. This new file includes descriptive data on household income as well as consumption. The data file can be linked to the NBER TAXSIM program and used to evaluate the distributional effects of changing the federal income tax code, as well as the distributional effects of replacing the individual income tax with a consumption tax. We use this data file to analyze the long-run distributional effects of adopting a national retail sales tax that raises enough revenue to replace the current federal individual income tax and corporation income tax, as well as federal estate and gift taxes. Our results highlight the sensitivity of the change in distributional burdens to provisions such as lump sum transfers, sometimes called 'demogrants,' the retail sales tax plan, and to the choice between income and consumption as a basis for categorizing households in distribution tables.

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This chapter was published in:

  • James M. Poterba, 1997. "Tax Policy and the Economy, Volume 11," NBER Books, National Bureau of Economic Research, Inc, number pote97-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 10905.

    Handle: RePEc:nbr:nberch:10905

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    1. James M. Poterba & Julio J. Rotemberg & Lawrence H. Summers, 1985. "A Tax-Based Test for Nominal Rigidities," NBER Working Papers 1627, National Bureau of Economic Research, Inc.
    2. Joel B. Slemrod, 1992. "Taxation and Inequality: A Time-Exposure Perspective," NBER Chapters, in: Tax Policy and the Economy, Volume 6, pages 105-128 National Bureau of Economic Research, Inc.
    3. Poterba, James M, 1989. "Lifetime Incidence and the Distributional Burden of Excise Taxes," American Economic Review, American Economic Association, American Economic Association, vol. 79(2), pages 325-30, May.
    4. Barthold, Thomas A., 1993. "How Should We Measure Distribution?," National Tax Journal, National Tax Association, vol. 46(3), pages 291-99, September.
    5. Kotlikoff, L.J., 1992. "The Economic Impact of Replacing Federal Income Taxes with a Sale Tax," Papers, Boston University - Department of Economics 14, Boston University - Department of Economics.
    6. 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.
    7. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 70, pages 215.
    8. Benjamin Okner, 1974. "Data Matching and Merging: An Overview," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 2, pages 49-54 National Bureau of Economic Research, Inc.
    9. Caspersen, Erik & Metcalf, Gilbert E., 1994. "Is a Value Added Tax Regressive? Annual Versus Lifetime Incidence Measures," National Tax Journal, National Tax Association, vol. 47(4), pages 731-46, December.
    10. Feldstein, Martin, 1988. "Imputing Corporate Tax Liabilities to Individual Taxpayers," National Tax Journal, National Tax Association, vol. 41(1), pages 37-59, March.
    11. Bull, Nicholas & Lindsey, Lawrence B., 1996. "Monetary Implications of Tax Reforms," National Tax Journal, National Tax Association, vol. 49(3), pages 359-79, September.
    12. Mankiw, N Gregory & Summers, Lawrence H, 1986. "Money Demand and the Effects of Fiscal Policies," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 18(4), pages 415-29, November.
    13. David Bradford, . "Consumption Taxes: Some Fundamental Transition Issues," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 95-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    14. Martin Feldstein, 1987. "Imputing Corporate Tax Liabilities to Individual Taxpayers," NBER Working Papers 2349, National Bureau of Economic Research, Inc.
    15. Davies, James B & St-Hilaire, France & Whalley, John, 1984. "Some Calculations of Lifetime Tax Incidence," American Economic Review, American Economic Association, American Economic Association, vol. 74(4), pages 633-49, September.
    16. Robert E. Hall, 1996. "The Effects of Tax Reform on Prices and Asset Values," NBER Chapters, in: Tax Policy and the Economy, Volume 10, pages 71-88 National Bureau of Economic Research, Inc.
    17. Gilbert E. Metcalf, 2006. "Value-Added Tax," Discussion Papers Series, Department of Economics, Tufts University, Department of Economics, Tufts University 0608, Department of Economics, Tufts University.
    18. Gilbert E. Metcalf, 1994. "Life Cycle versus Annual Perspectives on the Incidence of a Value Added Tax," NBER Chapters, in: Tax Policy and the Economy, Volume 8, pages 45-64 National Bureau of Economic Research, Inc.
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    Cited by:
    1. Timothy J. Besley & Harvey S. Rosen, 1999. "Vertical Externalities in Tax Setting: Evidence from Gasoline and Cigarettes," NBER Working Papers 6517, National Bureau of Economic Research, Inc.
    2. Isabel Correia, 2010. "Consumption Taxes and Redistribution," American Economic Review, American Economic Association, American Economic Association, vol. 100(4), pages 1673-94, September.
    3. Don Fullerton & Gilbert E. Metcalf, 2002. "Tax Incidence," NBER Working Papers 8829, National Bureau of Economic Research, Inc.
    4. James Poterba, 1997. "The Estate Tax and After-Tax Investment Returns," NBER Working Papers 6337, National Bureau of Economic Research, Inc.
    5. Gilbert E. Metcalf, 1998. "A Distributional Analysis of an Environmental Tax Shift," Discussion Papers Series, Department of Economics, Tufts University, Department of Economics, Tufts University 9801, Department of Economics, Tufts University.
    6. Andrew Mitrusi & James Poterba, 2000. "The Distribution of Payroll and Income Tax Burdens, 1979-1999," NBER Working Papers 7707, National Bureau of Economic Research, Inc.
    7. William M. Gentry & R. Glenn Hubbard, 1996. "Distributional Implications of Introducing a Broad-Based Consumption Tax," NBER Working Papers 5832, National Bureau of Economic Research, Inc.
    8. Michael Keen, 1997. "Peculiar institutions: A British perspective on tax policy in the United States," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 18(4), pages 371-400, November.
    9. Berthold U. Wigger, 2004. "On the Intergenerational Incidence of Wage and Consumption Taxes," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(1), pages 1-23, 02.
    10. Alan D. Viard, 2000. "The transition to consumption taxation, part 1: the impact on existing capital," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, Federal Reserve Bank of Dallas, issue Q3, pages 2-22.
    11. William G. Gale & Joel B. Slemrod, 2001. "Rethinking the Estate and Gift Tax: Overview," NBER Working Papers 8205, National Bureau of Economic Research, Inc.
    12. George R. Zodrow, 2007. "Should Capital Income be Subject to Consumption-Based Taxation?," Working Papers, Oxford University Centre for Business Taxation 0715, Oxford University Centre for Business Taxation.
    13. David Albouy, 2008. "Are Big Cities Bad Places to Live? Estimating Quality of Life across Metropolitan Areas," NBER Working Papers 14472, National Bureau of Economic Research, Inc.

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