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Capital Levies and Transition to a Consumption Tax

  • Louis Kaplow

The merits of capital levies depend on the likelihood of repetition, the extent of anticipation, and its effects on distribution. The relevance of these features, which in varying degrees is underdeveloped or underappreciated in pertinent literatures, is elaborated and then considered with regard to the problem of transition to a consumption tax. Other transition issues are distinguished, and specific attention is devoted to rate changes under a consumption tax and whether owners of preexisting capital are effectively compensated through higher net-of-tax returns due to repeal of the income tax. The analysis is also related to literature that examines dynamic models of taxation, particularly work simulating consumption tax transitions and assessing the optimality of capital taxation in the long run.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12259.

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Date of creation: May 2006
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Publication status: published as Auerbach, Alan J. and Daniel N. Shaviro (eds.) Institutional Foundations of Public Finance: Economic and Legal Perspectives. Cambridge and London: Harvard University Press, 2008.
Handle: RePEc:nbr:nberwo:12259
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  2. Bernheim, B. Douglas, 2002. "Taxation and saving," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 18, pages 1173-1249 Elsevier.
  3. William M. Gentry & R. Glenn Hubbard, 1996. "Distributional Implications of Introducing a Broad-Based Consumption Tax," NBER Working Papers 5832, National Bureau of Economic Research, Inc.
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  8. Howitt, Peter & Sinn, Hans-Werner, 1989. "Gradual Reforms of Capital Income Taxation," Munich Reprints in Economics 19370, University of Munich, Department of Economics.
  9. Auerbach, Alan J., 2006. "The Choice between Income and Consumption Taxes: A Primer," Berkeley Olin Program in Law & Economics, Working Paper Series qt9q85f6qz, Berkeley Olin Program in Law & Economics.
  10. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
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  20. Rogers, Carol Ann, 1986. "The effect of distributive goals on the time inconsistency of optimal taxes," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 251-269, March.
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  23. Joseph E. Stiglitz, 1987. "Pareto Efficient and Optimal Taxation and the New New Welfare Economics," NBER Working Papers 2189, National Bureau of Economic Research, Inc.
  24. David F. Bradford, 1995. "Consumption Taxes: Some Fundamental Transition Issues," NBER Working Papers 5290, National Bureau of Economic Research, Inc.
  25. Louis Kaplow, 2003. "Transition Policy: A Conceptual Framework," NBER Working Papers 9596, National Bureau of Economic Research, Inc.
  26. Kevin Roberts, 1984. "The Theoretical Limits to Redistribution," Review of Economic Studies, Oxford University Press, vol. 51(2), pages 177-195.
  27. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 1-12.
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