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The Choice between Income and Consumption Taxes: A Primer

  • Auerbach, Alan J.

It has now been nearly three decades since the publication of two important volumes that laid out many of the details of how one might implement a progressive consumption tax (Institute for Fiscal Studies, 1978; U.S. Treasury, 1977). Over the years since, many contributions have analyzed the mechanics of the different variants of consumption taxation, the potential efficiency and distributional effects of their adoption, the issues of administration and transition from the current tax system, and the problems relating to certain types of transactions. But much of what we %u201Cknow%u201D is not part of the general policy discussion and there are important issues that the literature has recognized but still not resolved. The aim of this paper is to lay out the key economic issues involved in deciding whether and how to adopt a consumption tax and to discuss what theory and evidence have told us and could tell us about these issues.

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Paper provided by Berkeley Olin Program in Law & Economics in its series Berkeley Olin Program in Law & Economics, Working Paper Series with number qt9q85f6qz.

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Date of creation: 06 May 2006
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Handle: RePEc:cdl:oplwec:qt9q85f6qz
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  1. Mikhail Golosov & Narayana Kocherlakota & Aleh Tsyvinski, 2003. "Optimal Indirect and Capital Taxation," Review of Economic Studies, Wiley Blackwell, vol. 70(3), pages 569-587, 07.
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  5. Shinichi Nishiyama & Kent Smetters, 2005. "Consumption Taxes and Economic Efficiency with Idiosyncratic Wage Shocks," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1088-1115, October.
  6. Alan J. Auerbach, 1983. "Corporate Taxation in the United States," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 451-514.
  7. Gordon, Roger H, 1985. "Taxation of Corporate Capital Income: Tax Revenues versus Tax Distortions," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 1-27, February.
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  12. Jeremy I. Bulow & Lawrence H. Summers, 1982. "The Taxation of Risky Assets," NBER Working Papers 0897, National Bureau of Economic Research, Inc.
  13. Alan Auerbach & David Bradford, 2001. "Generalized Cash Flow Taxation," CESifo Working Paper Series 425, CESifo Group Munich.
  14. James M. Poterba, 2004. "Valuing Assets in Retirement Saving Accounts," Working Papers, Center for Retirement Research at Boston College wp2004-11, Center for Retirement Research, revised Apr 2004.
  15. Auerbach, Alan J, 1997. "The Future of Fundamental Tax Reform," American Economic Review, American Economic Association, vol. 87(2), pages 143-46, May.
  16. 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.
  17. Hubbard, R Glenn, 1997. "How Different Are Income and Consumption Taxes?," American Economic Review, American Economic Association, vol. 87(2), pages 138-42, May.
  18. David F. Bradford, 1998. "Transition to and Tax Rate Flexibility in a Cash-Flow Type Tax," NBER Working Papers 6465, National Bureau of Economic Research, Inc.
  19. Louis Kaplow, 1991. "Taxation and Risk Taking: A General Equilibrium Perspective," NBER Working Papers 3709, National Bureau of Economic Research, Inc.
  20. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
  21. Kaplow, Louis, 1994. "Taxation and Risk Taking: A General Equilibrium Perspective," National Tax Journal, National Tax Association, vol. 47(4), pages 789-98, December.
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