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Simulating the Dynamic Macroeconomic and Microeconomic Effects of the FairTax1

Author

Listed:
  • Sabine Jokisch

    (Centre for European Economic Research)

  • Laurence J. Kotlikoff

    (Department of Economics, Boston University and NBER)

Abstract

America's aging coupled with high and growing old age health and pension benefits augers for much higher payroll taxes, with damaging effects on the U.S. economy. This prognosis is supported by our analysis of a detailed dynamic life-cycle general equilibrium model. The FairTax, which proposes to replace the federal payroll, personal income, corporate income, and estate tax with a progressive consumption tax, offers a potential alternative to this dismal economic future. According to our simulation model, these policy changes would lead to major improvements in the U.S. capital stock, long-run real wages and the wellbeing of the majority of Americans.

Suggested Citation

  • Sabine Jokisch & Laurence J. Kotlikoff, 2007. "Simulating the Dynamic Macroeconomic and Microeconomic Effects of the FairTax1," Boston University - Department of Economics - Working Papers Series WP2007-026, Boston University - Department of Economics.
    • Handle: RePEc:bos:wpaper:wp2007-026
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    References listed on IDEAS

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    Cited by:

    1. Yingxu Kuang & Ted Englebrecht & Otis W. Gilley, 2011. "A Distributional Analysis of the FairTax Plan: Annual and Lifetime Income Considerations," Southern Economic Journal, John Wiley & Sons, vol. 78(2), pages 358-381, October.
    2. Zodrow, George R. & Diamond, John W., 2013. "Dynamic Overlapping Generations Computable General Equilibrium Models and the Analysis of Tax Policy: The Diamond–Zodrow Model," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 743-813, Elsevier.

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