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Consumption-based Direct Taxes: A Guided Tour of the Amusement Park

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  • Charles E. McLure, Jr.
  • George R. Zodrow

Abstract

Although consumption-based direct taxation has long been advocated in academic and policy circles, very few countries have actually implemented such taxes.This article provides an overview of alternative approaches to direct consumption taxation and examines arguments favoring consumption taxes over income taxes. It then describes and analyzes efforts at "fundamental tax reform" involving replacing an income tax with a consumption tax in the United States and in several developing countries and countries in transition from socialism in which the authors have been involved.

Suggested Citation

  • Charles E. McLure, Jr. & George R. Zodrow, 2007. "Consumption-based Direct Taxes: A Guided Tour of the Amusement Park," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(2), pages 285-307, June.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200706)63:2_285:cdtagt_2.0.tx_2-x
    DOI: 10.1628/001522107X220125
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    References listed on IDEAS

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    1. Michael Devereux & Harold Freeman, 1991. "A general neutral profits tax," Fiscal Studies, Institute for Fiscal Studies, vol. 12(3), pages 1-15, August.
    2. John W. Diamond & George R. Zodrow, 2006. "Economic Effects of a Personal Capital Income Tax Add-On to a Consumption Tax," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0629, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    3. Boadway, Robin & Bruce, Neil, 1984. "A general proposition on the design of a neutral business tax," Journal of Public Economics, Elsevier, vol. 24(2), pages 231-239, July.
    4. Zodrow,George R. & Mieszkowski,Peter (ed.), 2002. "United States Tax Reform in the 21st Century," Cambridge Books, Cambridge University Press, number 9780521803830.
    5. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
    6. George R. Zodrow, 2007. "Should Capital Income be Subject to Consumption-Based Taxation?," Working Papers 0715, Oxford University Centre for Business Taxation.
    7. McLure, Charles E, Jr, 1992. "A Simpler Consumption-Based Alternative to the Income Tax for Socialist Economies in Transition," World Bank Research Observer, World Bank Group, vol. 7(2), pages 221-237, July.
    8. Michael Keen & John King, 2002. "The Croatian profit tax: an ACE in practice," Fiscal Studies, Institute for Fiscal Studies, vol. 23(3), pages 401-418, September.
    9. John W. Diamond & George R. Zodrow, 2007. "Economic Effects of a Personal Capital-Income Tax Add-On to a Flat Tax," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(3), pages 374-395, September.
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    Citations

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    Cited by:

    1. Bird, Richard M. & Zolt, Eric M., 2011. "Dual Income Taxation: A Promising Path to Tax Reform for Developing Countries," World Development, Elsevier, vol. 39(10), pages 1691-1703.
    2. Charles McLure & Jack Mintz & George Zodrow, 2015. "US Supreme Court unanimously chooses substance over form in foreign tax credit case: implications of the PPL decision for the creditability of cash-flow taxes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(5), pages 887-907, October.
    3. Stanley L. Winer, 2011. "Reflections on the Role of Optimal Design in the Tax Policy Process," New Directions for Intelligent Government in Canada: Papers in Honour of Ian Stewart,in: Fred Gorbet & Andrew Sharpe (ed.), New Directions for Intelligent Government in Canada: Papers in Honour of Ian Stewart, pages 205-210 Centre for the Study of Living Standards.
    4. Laurence Seidman, 2013. "Overcoming the Fiscal Trilemma with Two Progressive Consumption Tax Supplements," Public Finance Review, , vol. 41(6), pages 824-851, November.
    5. Roy Bahl & Sally Wallace, 2007. "From Income Tax to Consumption Tax?. The Case of Jamaica," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(3), pages 396-414, September.
    6. Charles E McLure & Jack Mintz & George R. Zodrow, 2014. "US Supreme Court Unanimously Chooses Substance over Form in Foreign Tax Credit," Working Papers 1411, Oxford University Centre for Business Taxation.
    7. Paola Profeta & Simona Scabrosetti & Stanley Winer, 2014. "Wealth transfer taxation: an empirical investigation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(4), pages 720-767, August.
    8. Bibek Adhikari & James Alm, 2016. "Evaluating the Economic Effects of Flat Tax Reforms Using Synthetic Control Methods," Southern Economic Journal, Southern Economic Association, vol. 83(2), pages 437-463, October.

    More about this item

    Keywords

    consumption-based taxes; fundamental tax reform; tax reform in developing countries; tax reform in transition countries;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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