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Economic Effects of a Personal Capital Income Tax Add-On to a Consumption Tax

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Author Info

  • John W. Diamond

    ()
    (Tax and Expenditure Policy Program, Baker Institute for Public Policy, Rice University)

  • George R. Zodrow

    ()
    (Economics Department and Tax and Expenditure Policy Program, Baker Institute for Public Policy, Rice University)

Abstract

In this paper, we compare the economic effects of such an approach to tax reform, relative to the enactment of a pure consumption tax such as the Hall and Rabushka (1983, 1995) Flat Tax. For the former approach, we analyze a stylized version of the GIT, which provides for consumption tax treatment at the business level (a cash flow tax on real transactions that allows expensing of all purchases of depreciable equipment and disallows interest deductions), supplemented by an individual-level flat rate tax on interest income, dividends and capital gains.

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Bibliographic Info

Paper provided by International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University in its series International Center for Public Policy Working Paper Series, at AYSPS, GSU with number paper0629.

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Length: 68 pages
Date of creation: 01 Dec 2006
Date of revision:
Handle: RePEc:ays:ispwps:paper0629

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Phone: 404-413-0235
Fax: 404-413-0244
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Related research

Keywords: Personal Capital Income Tax ; Consumption Tax; tax reform;

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References

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  1. Alan J. Auerbach & Laurence J. Kotlikoff & Jonathan Skinner, 1981. "The Efficiency Gains from Dynamic Tax Reform," NBER Working Papers 0819, National Bureau of Economic Research, Inc.
  2. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
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  8. Auerbach, Alan J., 1979. "A brief note on a non-existent theorem about the optimality of uniform taxation," Economics Letters, Elsevier, vol. 3(1), pages 49-52.
  9. Alan J. Auerbach & James R. Hines Jr., 2001. "Taxation and Economic Efficiency," NBER Working Papers 8181, National Bureau of Economic Research, Inc.
  10. Kaplow, Louis, 2006. "On the undesirability of commodity taxation even when income taxation is not optimal," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1235-1250, August.
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  12. 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.
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  14. Kenneth L. Judd, 1997. "The Optimal Tax Rate for Capital Income is Negative," NBER Working Papers 6004, National Bureau of Economic Research, Inc.
  15. George R. Zodrow, 2007. "Should Capital Income be Subject to Consumption-Based Taxation?," Working Papers 0715, Oxford University Centre for Business Taxation.
  16. Michael Keen & John King, 2002. "The Croatian profit tax: an ACE in practice," Fiscal Studies, Institute for Fiscal Studies, vol. 23(3), pages 401-418, September.
  17. George Zodrow, 2006. "Capital Mobility and Source-Based Taxation of Capital Income in Small Open Economies," International Tax and Public Finance, Springer, vol. 13(2), pages 269-294, May.
  18. Michael Devereux & Harold Freeman, 1991. "A general neutral profits tax," Fiscal Studies, Institute for Fiscal Studies, vol. 12(3), pages 1-15, August.
  19. 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.
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  22. Harry Grubert & Rosanne Altshuler, 2007. "Corporate Taxes in the World Economy: Reforming the Taxation of Cross-Border Income," Departmental Working Papers 200626, Rutgers University, Department of Economics.
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  24. Bruce, Donald & Holtz-Eakin, Douglas, 1999. "Fundamental Tax Reform and Residential Housing," Journal of Housing Economics, Elsevier, vol. 8(4), pages 249-271, December.
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Cited by:
  1. James Alm & Asmaa El-Ganainy, 2012. "Value-added Taxation and Consumption," Working Papers 1203, Tulane University, Department of Economics.

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