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The Choice between Income and Consumption Taxes: A Primer

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  • Auerbach, Alan J.

Abstract

It has now been nearly three decades since the publication of two important volumes that laid out many of the details of how one might implement a progressive consumption tax (Institute for Fiscal Studies, 1978; U.S. Treasury, 1977). Over the years since, many contributions have analyzed the mechanics of the different variants of consumption taxation, the potential efficiency and distributional effects of their adoption, the issues of administration and transition from the current tax system, and the problems relating to certain types of transactions. But much of what we %u201Cknow%u201D is not part of the general policy discussion and there are important issues that the literature has recognized but still not resolved. The aim of this paper is to lay out the key economic issues involved in deciding whether and how to adopt a consumption tax and to discuss what theory and evidence have told us and could tell us about these issues.

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Paper provided by Berkeley Olin Program in Law & Economics in its series Berkeley Olin Program in Law & Economics, Working Paper Series with number qt9q85f6qz.

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Date of creation: 06 May 2006
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Handle: RePEc:cdl:oplwec:qt9q85f6qz

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References

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  1. Mikhail Golosov & Narayana Kocherlakota & Aleh Tsyvinski, 2002. "Optimal Indirect and Capital Taxation," Levine's Working Paper Archive 391749000000000449, David K. Levine.
  2. James Poterba, 2004. "Valuing Assets in Retirement Saving Accounts," NBER Working Papers 10395, National Bureau of Economic Research, Inc.
  3. James R. Hines, 2004. "Might Fundamental Tax Reform Increase Criminal Activity?," Economica, London School of Economics and Political Science, vol. 71(283), pages 483-492, 08.
  4. Alan Auerbach & David Bradford, 2001. "Generalized Cash Flow Taxation," CESifo Working Paper Series 425, CESifo Group Munich.
  5. 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.
  6. Auerbach, Alan J, 1997. "The Future of Fundamental Tax Reform," American Economic Review, American Economic Association, vol. 87(2), pages 143-46, May.
  7. Louis Kaplow, 1991. "Taxation and Risk Taking: A General Equilibrium Perspective," NBER Working Papers 3709, National Bureau of Economic Research, Inc.
  8. Jeremy I. Bulow & Lawrence H. Summers, 1982. "The Taxation of Risky Assets," NBER Working Papers 0897, National Bureau of Economic Research, Inc.
  9. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
  10. David F. Bradford, 1998. "Transition to and Tax-Rate Flexibility in a Cash-Flow-Type Tax," NBER Chapters, in: Tax Policy and the Economy, Volume 12, pages 151-172 National Bureau of Economic Research, Inc.
  11. Kenneth L. Judd, 1997. "The Optimal Tax Rate for Capital Income is Negative," NBER Working Papers 6004, National Bureau of Economic Research, Inc.
  12. Kaplow, Louis, 1994. "Taxation and Risk Taking: A General Equilibrium Perspective," National Tax Journal, National Tax Association, vol. 47(4), pages 789-98, December.
  13. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  14. B. Douglas Bernheim & Antonio Rangel, 2005. "Behavioral Public Economics: Welfare and Policy Analysis with Non-Standard Decision-Makers," Discussion Papers 04-033, Stanford Institute for Economic Policy Research.
  15. Alan J. Auerbach, 1983. "Corporate Taxation in the United States," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 451-514.
  16. Hubbard, R Glenn, 1997. "How Different Are Income and Consumption Taxes?," American Economic Review, American Economic Association, vol. 87(2), pages 138-42, May.
  17. James M. Poterba, 2004. "Valuing Assets in Retirement Saving Accounts," Working Papers, Center for Retirement Research at Boston College wp2004-11, Center for Retirement Research, revised Apr 2004.
  18. Poterba, James M., 2004. "Valuing Assets in Retirement Saving Accounts," National Tax Journal, National Tax Association, vol. 57(2), pages 489-512, June.
  19. Gordon, Roger H, 1985. "Taxation of Corporate Capital Income: Tax Revenues versus Tax Distortions," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 1-27, February.
  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.
  21. 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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Citations

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Cited by:
  1. Christian R. Jaramillo H. & Jorge Tovar, 2007. "Reflexiones Sobre La Teoría Y La Práctica Del Iva En Colombia," DOCUMENTOS CEDE 003425, UNIVERSIDAD DE LOS ANDES-CEDE.
  2. Louis Kaplow, 2006. "Capital Levies and Transition to a Consumption Tax," NBER Working Papers 12259, National Bureau of Economic Research, Inc.
  3. Jing Xing, 2011. "Does tax structure affect economic growth? Empirical evidence from OECD countries," Working Papers 1120, Oxford University Centre for Business Taxation.
  4. Ruud de Mooij & Michael Keen, 2012. "'Fiscal Devaluation' and Fiscal Consolidation: The VAT in Troubled Times," NBER Working Papers 17913, National Bureau of Economic Research, Inc.
  5. repec:ese:emodwp:em15-13 is not listed on IDEAS
  6. André Decoster & Jason Loughrey & Cathal O'Donoghue & Dirk Verwerft, 2011. "Microsimulation of indirect taxes," International Journal of Microsimulation, Interational Microsimulation Association, vol. 4(2), pages 41-56.
  7. Alan J. Auerbach, 2006. "The Future of Capital Income Taxation," Fiscal Studies, Institute for Fiscal Studies, vol. 27(4), pages 399-420, December.
  8. repec:ese:iserwp:2009-02 is not listed on IDEAS
  9. Peichl, Andreas, 2008. "The Benefits of Linking CGE and Microsimulation Models: Evidence from a Flat Tax Analysis," IZA Discussion Papers 3715, Institute for the Study of Labor (IZA).
  10. Auerbach, Alan J., 2006. "Tax Reform in the 21st Century," Berkeley Olin Program in Law & Economics, Working Paper Series qt444479wh, Berkeley Olin Program in Law & Economics.
  11. Francesco Figari & Paulus, A. (Alari), 2012. "GINI DP 28: The impact of indirect taxes and imputed rent on inequality: A comparison with cash transfers and direct taxes in five EU countries," GINI Discussion Papers 28, AIAS, Amsterdam Institute for Advanced Labour Studies.
  12. Peter Birch Sørensen, 2006. "The Theory of Optimal Taxation: What is the Policy Relevance?," EPRU Working Paper Series 06-07, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  13. World Bank, 2009. "Pakistan - Tax Policy Report : Tapping Tax Bases for Development - Full Report," World Bank Other Operational Studies 3100, The World Bank.

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