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Consumption and Income Taxation

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  • Browning, Martin
  • Burbidge, John

Abstract

The contemporary preoccupation with the optimality of consumption over income taxation dwells uneasily alongside the ambiguities in the older optimal tax literature. The recent literature has become mired in questions of optimal debt policy, to such an extent that one cannot adopt a position on tax reform, without simultaneoulsy taking a position on whether the U.S. economy saves too little or too much. We argue that the case for consumption taxation is not robust to modifications of assumptions in plausible directions. In particular, straigtforward modifications of the standard microeconomic life-cycle model to incorporate liquidity constraints and a human capital decision can make it optimal to supplement a consumption tax with an interest income tax. Copyright 1990 by Royal Economic Society.

Suggested Citation

  • Browning, Martin & Burbidge, John, 1990. "Consumption and Income Taxation," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 281-292, January.
  • Handle: RePEc:oup:oxecpp:v:42:y:1990:i:1:p:281-92
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    Cited by:

    1. Anagnostopoulos, Alexis & Li, Qian, 2013. "Consumption taxes and precautionary savings," Economics Letters, Elsevier, vol. 119(3), pages 238-242.
    2. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1996. "Are consumption taxes really better than income taxes?," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 475-503, June.
    3. Craig Brett & John Weymark, 2008. "Optimal Nonlinear Taxation of Income and Savings without Commitment," Vanderbilt University Department of Economics Working Papers 0805, Vanderbilt University Department of Economics.
    4. Craig Brett & John A. Weymark, 2005. "Optimal Nonlinear Taxation of Income and Savings in a Two Class Economy," Vanderbilt University Department of Economics Working Papers 0525, Vanderbilt University Department of Economics.
    5. Blackorby, Charles & Brett, Craig, 2004. "Capital Taxation In A Simple Finite-Horizon Olg Model," The Warwick Economics Research Paper Series (TWERPS) 709, University of Warwick, Department of Economics.

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