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Optimal Lifetime Consumption Paths under Equal Yield Income and Consumption Taxes

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  • Roskamp, Karl W

Abstract

Excess burden of an equal-yield, flat-rate tax is studied with the aid of a dynamic model. An individual seeks a consumption rate which maximizes the discounted utility stream over a finite period of known length. With supply of labor but not of savings fixed, government extracts a given amount of revenue through an income or a consumption tax. Income taxation induces early consumption, taxation of consumption early asset accumulation. The latter is higher under a consumption tax. The intertemporal excess burden is lower with a consumption tax. This finding was confirmed in two special cases.

Suggested Citation

  • Roskamp, Karl W, 1987. "Optimal Lifetime Consumption Paths under Equal Yield Income and Consumption Taxes," Public Finance = Finances publiques, , vol. 42(1), pages 32-41.
    • Handle: RePEc:pfi:pubfin:v:42:y:1987:i:1:p:32-41
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