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Source of income effects for demand decisions and taxable consumption

  • Richard Hawkins
  • Sally Wallace

The relationship between sources of income and demand decisions by the household is examined here with an eye toward the ramifications on consumption tax bases. Income sources may be important when households attach psychic and transaction costs to individual purchases or when sources are assigned via a mental accounting process. In either case, general and specific sales tax bases may be affected by changes in income composition. Empirical results indicate two important findings. First, tax exemptions can introduce significant income source effects for a general consumption tax base. Second, the importance of differential tax rates for gasoline and food-at-home strongly depends on the mix of labour, capital, retirement and non-retirement transfer pay.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 38 (2006)
Issue (Month): 20 ()
Pages: 2371-2379

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Handle: RePEc:taf:applec:v:38:y:2006:i:20:p:2371-2379
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  1. Hawkins, Richard R., 2002. "Popular Substitution Effects: Excess Burden Estimates For General Sales Taxes," National Tax Journal, National Tax Association, vol. 55(4), pages 755-70, December.
  2. Bruno Heyndels, 2001. "Asymmetries in the flypaper effect: empirical evidence for the Flemish municipalities," Applied Economics, Taylor & Francis Journals, vol. 33(10), pages 1329-1334.
  3. Barrow, Lisa & McGranahan, Leslie, 2000. "The Effects of the Earned Income Credit on the Seasonality of Household Expenditures," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 1211-44, December.
  4. Matthew D. Shapiro & Joel Slemrod, 2003. "Consumer Response to Tax Rebates," American Economic Review, American Economic Association, vol. 93(1), pages 381-396, March.
  5. Aled ab Iorwerth & John Whalley, 2002. "Efficiency considerations and the exemption of food from sales and value added taxes," Canadian Journal of Economics, Canadian Economics Association, vol. 35(1), pages 166-182, February.
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