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From Income Tax to Consumption Tax?. The Case of Jamaica

Author

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  • Roy Bahl
  • Sally Wallace

Abstract

Over the past decade, a number of countries have shifted to single-rate tax systems with broader bases and lower rates. In the U.S., there continues to be discussion of the merits of a consumption tax, and of base-broadening reforms to the income tax system. The objective of this paper is to demonstrate how, over time, a conventional income tax could be converted to a flat-rate consumption tax in a developing country. The value of this analysis, we hope, comes with the use of a real-world situation (Jamaica), which allows us to focus on the detail that determines the feasibility of transitioning to a flat-rate tax on consumption. Our main contribution is to show the conditions under which the switch can be revenue-neutral.

Suggested Citation

  • 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.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200709)63:3_396:fittct_2.0.tx_2-l
    DOI: 10.1628/001522107X250122
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    References listed on IDEAS

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    1. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
    2. 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.
    3. Ricardo Varsano & Kevin Kim & Michael Keen, 2006. "The "Flat Tax(es)"; Principles and Evidence," IMF Working Papers 06/218, International Monetary Fund.
    4. Richard M. Bird, 2006. "Is VAT the Best Way to Impose a General Consumption Tax in Developing Countries?," International Tax Program Papers 0602, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
    5. James Alm and Joege Martinez Vazquez, 2003. ""Sizing" the problem of the Hard-to-Tax," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0321, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    6. Zodrow, George R. & McLure, Charles E. Jr., 1988. "Implementing direct consumption taxes in developing countries," Policy Research Working Paper Series 131, The World Bank.
    7. Thomas F. Rutherford & Miles K. Light & Felipe Barrera Osorio, 2003. "Equity and effciency costs of raising tax revenue in Colombia," INFORMES DE INVESTIGACIÓN 002583, FEDESARROLLO.
    8. Sally Wallace & James Alm, 2004. "The Jamaican Individual Income Tax," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0430, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    9. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    10. Dillon Alleyne & James Alm & Roy Bahl & Sally Wallace, 2004. "Tax Burden in Jamaica," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0434, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
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    Cited by:

    1. repec:wbk:wbpubs:28544 is not listed on IDEAS
    2. Daniel Lederman & Justin T. Lesniak, 2018. "Open and Nimble," World Bank Publications, The World Bank, number 28544.

    More about this item

    Keywords

    flat tax; consumption tax; tax policy;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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