IDEAS home Printed from https://ideas.repec.org/a/bpj/bejmac/v20y2020i2p33n1.html
   My bibliography  Save this article

Dynamic effects of consumption tax reforms with durable consumption

Author

Listed:
  • Li Qian

    (Key Laboratory of Mathematical Economics (SUFE), Ministry of Education, Shanghai, China)

Abstract

This paper introduces durables into a dynamic general equilibrium overlapping generation model with idiosyncratic income shocks and endogenous borrowing constraints, which depend on durables. The aim of this paper is to evaluate the welfare effects of consumption tax reforms in a richer model that captures the difference between nondurable and durable consumption. When durables are considered, the standard results that a shift to consumption taxes is welfare improving are overturned. The mechanism of this opposing result is that consumption tax makes durable consumption more expensive without relaxing the borrowing constraint. The inability of borrowing to insure against income risk deviates the economy further away from market completeness and particularly hurts young and poor households. As a result, welfare decreases, coupled with negative redistribution.

Suggested Citation

  • Li Qian, 2020. "Dynamic effects of consumption tax reforms with durable consumption," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(2), pages 1-33, June.
    • Handle: RePEc:bpj:bejmac:v:20:y:2020:i:2:p:33:n:1
    DOI: 10.1515/bejm-2019-0026
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/bejm-2019-0026
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/bejm-2019-0026?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    consumption tax; durable consumption; endogenous borrowing constraint; incomplete markets; transitional dynamics; welfare;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejmac:v:20:y:2020:i:2:p:33:n:1. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.