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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)

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

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

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

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References listed on IDEAS
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  1. Robert E. Hall, 2004. "Measuring Factor Adjustment Costs," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 899-927, August. [Downloadable!] (restricted)
  2. George R. Zodrow, 2007. "Should Capital Income be Subject to Consumption-Based Taxation?," Working Papers 0715, Oxford University Centre for Business Taxation. [Downloadable!]
  3. Michael Devereux & Harold Freeman, 1991. "A general neutral profits tax," Fiscal Studies, Institute for Fiscal Studies, vol. 12(3), pages 1-15, August.
  4. Auerbach, Alan J & Kotlikoff, Laurence J & Skinner, Jonathan, 1983. "The Efficiency Gains from Dynamic Tax Reform," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(1), pages 81-100, February. [Downloadable!] (restricted)
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  5. 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. [Downloadable!]
  6. Kenneth L. Judd, 1997. "The Optimal Tax Rate for Capital Income is Negative," NBER Working Papers 6004, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Christian Keuschnigg & Martin Dietz, 2007. "A growth oriented dual income tax," International Tax and Public Finance, Springer, vol. 14(2), pages 191-221, April. [Downloadable!] (restricted)
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  8. Bruce, Donald & Holtz-Eakin, Douglas, 1999. "Fundamental Tax Reform and Residential Housing," Journal of Housing Economics, Elsevier, vol. 8(4), pages 249-271, December. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
  10. Louis Kaplow, 2004. "On the Undesirability of Commodity Taxation Even When Income Taxation is Not Optimal," NBER Working Papers 10407, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Erosa, Andres & Gervais, Martin, 2002. "Optimal Taxation in Life-Cycle Economies," Journal of Economic Theory, Elsevier, vol. 105(2), pages 338-369, August. [Downloadable!] (restricted)
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  12. 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. [Downloadable!] (restricted)
  13. 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.
  14. 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. [Downloadable!] (restricted)
  15. Auerbach, Alan J. & Hines, James Jr., 2002. "Taxation and economic efficiency," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 21, pages 1347-1421 Elsevier. [Downloadable!] (restricted)
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  16. David Altig et al., 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June. [Downloadable!] (restricted)
  17. Carlos Garriga-Calvet, 2000. "Optimal Fiscal Policy in Overlapping Generations Models," Econometric Society World Congress 2000 Contributed Papers 1772, Econometric Society. [Downloadable!]
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  18. 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. [Downloadable!] (restricted)
  19. Nielsen, Soren Bo & Sorensen, Peter Birch, 1997. "On the optimality of the Nordic system of dual income taxation," Journal of Public Economics, Elsevier, vol. 63(3), pages 311-329, February. [Downloadable!] (restricted)
  20. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May. [Downloadable!] (restricted)
  21. Chamley, Christophe, 2001. "Capital income taxation, wealth distribution and borrowing constraints," Journal of Public Economics, Elsevier, vol. 79(1), pages 55-69, January. [Downloadable!] (restricted)
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