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The Role of Tax-Deductible Saving in the Transition from a Progressive Income Tax to a Progressive Consumption Tax

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  • Daly, Michael J
  • Lastman, Gary J
  • Naquib, Fadle

Abstract

This paper examines the steady state and transition effects of converting from a graduated income tax to a graduated consumption tax. The authors' simulation results suggest that considerable dynamic efficiency gains could be achieved by switching to a graduated consumption tax, where all saving is tax deductible. An alternative tax system, permitting both tax-deductible and non-tax-deductible saving, is also examined. It is shown that not only is such a tax system a feasible way of implementing a graduated consumption tax, but also an alternative tax without any limits on tax-deductible saving could be more efficient than even a graduated consumption tax in a steady state.

Suggested Citation

  • Daly, Michael J & Lastman, Gary J & Naquib, Fadle, 1988. "The Role of Tax-Deductible Saving in the Transition from a Progressive Income Tax to a Progressive Consumption Tax," Public Finance = Finances publiques, , vol. 43(3), pages 349-372.
    • Handle: RePEc:pfi:pubfin:v:43:y:1988:i:3:p:349-72
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    Cited by:

    1. Sayed Afzal Peerzade, 1999. "Place for an Expenditure Tax in the Islamic Fiscal System ضريبة الإنفاق في النظام المالي الإسلامي العام," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 11(1), pages 27-54, January.

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