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The Choice Between Income and Consumption Taxes: A Primer

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  • Alan J. Auerbach

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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12307.

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Date of creation: Jun 2006
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Publication status: published as Auerbach. A. and D. Shaviro (eds.) Institutional Foundations of Public Finance: Economic and Legal Perspectives. Harvard University Press, 2009.
Handle: RePEc:nbr:nberwo:12307

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  1. Mikhail Golosov & Narayana Kocherlakota & Aleh Tsyvinski, 2003. "Optimal Indirect and Capital Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 70(3), pages 569-587, 07.
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  13. James R. Hines, 2004. "Might Fundamental Tax Reform Increase Criminal Activity?," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 71(283), pages 483-492, 08.
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  15. James Poterba, 2004. "Valuing Assets in Retirement Saving Accounts," NBER Working Papers 10395, National Bureau of Economic Research, Inc.
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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, UNIVERSIDAD DE LOS ANDES-CEDE 003425, UNIVERSIDAD DE LOS ANDES-CEDE.
  2. 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.
  3. World Bank, 2009. "Pakistan - Tax Policy Report : Tapping Tax Bases for Development - Full Report," World Bank Other Operational Studies 3100, The World Bank.
  4. Auerbach, Alan J., 2006. "The Future of Capital Income Taxation," Berkeley Olin Program in Law & Economics, Working Paper Series, Berkeley Olin Program in Law & Economics qt90v90406, Berkeley Olin Program in Law & Economics.
  5. 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.
  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. Peter Birch Sørensen, 2006. "The Theory of Optimal Taxation: What is the Policy Relevance?," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 06-07, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  8. Auerbach, Alan J., 2006. "Tax Reform in the 21st Century," Berkeley Olin Program in Law & Economics, Working Paper Series, Berkeley Olin Program in Law & Economics qt444479wh, Berkeley Olin Program in Law & Economics.
  9. Peichl, Andreas, 2008. "The benefits of linking CGE and Microsimulation Models - Evidence from a Flat Tax analysis," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 08-6, University of Cologne, FiFo Institute for Public Economics.
  10. Jing Xing, 2011. "Does tax structure affect economic growth? Empirical evidence from OECD countries," Working Papers, Oxford University Centre for Business Taxation 1120, Oxford University Centre for Business Taxation.
  11. Figari, Francesco & Paulus, Alari, 2013. "The distributional effects of taxes and transfers under alternative income concepts: the importance of three ‘I’s," EUROMOD Working Papers EM15/13, EUROMOD at the Institute for Social and Economic Research.
  12. Louis Kaplow, 2006. "Capital Levies and Transition to a Consumption Tax," NBER Working Papers 12259, National Bureau of Economic Research, Inc.
  13. Peichl, Andreas, 2009. "Benefits and problems of linking micro and macro models - evidence from a flat tax analysis," ISER Working Paper Series 2009-02, Institute for Social and Economic Research.

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