Advanced Search
MyIDEAS: Login

Flat Tax Reforms: Investment Expensing And Progressivity

Contents:

Author Info

  • Javier Díaz-Giménez

    ()
    (IESE Business School)

  • Josep Pijoan-Mas

    ()
    (CEMFI, Centro de Estudios Monetarios y Financieros)

Abstract

In this article we quantify the aggregate, distributional and welfare consequences of investment expensing and progressivity in flat-tax reforms of the United Sates economy. We find that investment expensing as in the Hall and Rabushka type of reform brings about sizable output gains and non-trivial increase in after-tax income inequality. But we also find that it results in large aggregate welfare gains in steady-state. Two additional flat-tax reforms with full investment expensing and varying degrees of progressivity reveal that the distributional role of the tax-exemption in the labor income tax is limited. But we also find that the progressivity of the reforms matters for welfare: economies with more progressive consumption-based flat-taxes are good for the very poor and are ultimately preferred by a Benthamite social planner because they allow households to do more consumption and leisure smoothing. Our findings suggest that moving towards a progressive consumption-based flat tax scheme could achieve the goals of raising government income, stimulating the economy and providing a safety net for the households that have been hit the hardest by the recession.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cemfi.es/ftp/wp/1101.pdf
Download Restriction: no

Bibliographic Info

Paper provided by CEMFI in its series Working Papers with number wp2011_1101.

as in new window
Length:
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:cmf:wpaper:wp2011_1101

Contact details of provider:
Postal: Casado del Alisal, 5, 28014 Madrid
Phone: 914290551
Fax: 914291056
Email:
Web page: http://www.cemfi.es/
More information through EDIRC

Related research

Keywords: Flat-tax reforms; progressivity; efficiency; inequality.;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Guner, Nezih & Kaygusuz, Remzi & Ventura, Gustavo, 2008. "Taxation, Aggregates and the Household," CEPR Discussion Papers 6702, C.E.P.R. Discussion Papers.
  2. Albert Marcet & Francesc Obiols-Homs & Philippe Weil, 2007. "Incomplete Markets, Labor Supply and Capital Accumulation," Sciences Po publications info:hdl:2441/8623, Sciences Po.
  3. Mariacristina deNardi, 2000. "Wealth Inequality and Intergenerational Links," Econometric Society World Congress 2000 Contributed Papers 0547, Econometric Society.
  4. 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.
  5. Josep Pijoan-Mas, 2004. "Precautionary Savings or Working Longer Hours?," 2004 Meeting Papers 350, Society for Economic Dynamics.
  6. Aaron, Henry J. & Munnell, Alicia H., 1992. "Reassessing the Role for Wealth Transfer Taxes," National Tax Journal, National Tax Association, vol. 45(2), pages 119-43, June.
  7. David Domeij & Jonathan Heathcote, 2004. "On The Distributional Effects Of Reducing Capital Taxes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 523-554, 05.
  8. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
  9. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Ji, K., 2013. "Essays on tax policy, institutions, and output," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5928131, Tilburg University.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cmf:wpaper:wp2011_1101. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Araceli Requerey).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.