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The economic effects of the fair tax: analysis of results of a dynamic CGE model of the US economy

Author

Listed:
  • Keshab Bhattarai

    () (University of Hull)

  • Jonathan Haughton

    (Department of Economics and Beacon Hill Institute at Suffolk University)

  • David G. Tuerck

    (Department of Economics and Beacon Hill Institute at Suffolk University)

Abstract

Abstract By replacing the current income tax with a national sales tax, the FairTax proposal would end the double taxation of saving inherent in the existing tax code and, by doing so, raise output, employment, investment and capital stock relative to the benchmark economy. While these positive effects would be felt almost immediately, the FairTax is very much an investment in the future. Its full benefits would be realized only after the economy achieved a new “steady state,” some 20–25 years into implementation. Only by that point, will the effects on growth have been fully absorbed into the economy and the wellbeing of most households across most income groups improved. The policy choice, then, is between the status quo, and a new policy that would inflict some short-run pain as the price of a permanently expanded economy.

Suggested Citation

  • Keshab Bhattarai & Jonathan Haughton & David G. Tuerck, 2016. "The economic effects of the fair tax: analysis of results of a dynamic CGE model of the US economy," International Economics and Economic Policy, Springer, vol. 13(3), pages 451-466, July.
  • Handle: RePEc:kap:iecepo:v:13:y:2016:i:3:d:10.1007_s10368-016-0352-4
    DOI: 10.1007/s10368-016-0352-4
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    References listed on IDEAS

    as
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    Cited by:

    1. repec:eee:enepol:v:117:y:2018:i:c:p:1-13 is not listed on IDEAS
    2. Pereira, Alfredo Marvão & Pereira, Rui Manuel, 2018. "A lower vat rate on electricity in Portugal: Towards a cleaner environment, better economic performance, and less inequality," Energy Policy, Elsevier, vol. 117(C), pages 1-13.
    3. repec:eee:ecmode:v:68:y:2018:i:c:p:529-542 is not listed on IDEAS
    4. repec:ibn:ijefaa:v:9:y:2017:i:5:p:20-35 is not listed on IDEAS

    More about this item

    Keywords

    Dynamic CGE; Tax reform; Growth; Distribution; US economy;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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