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Lifecycle vs. Annual Perspectives on the Incidence of A Value Added Tax

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  • Gilbert E. Metcalf

Abstract

This paper analyzes the steady state distribution of tax burdens of a Value Added Tax (VAT) in the United States using a lifetime perspective. In contrast to an annual snapshot perspective, I find that a VAT on total expenditures would be proportional over the lifetime. Various modifications to the VAT (zero rating necessities or giving lump sum household rebates) would increase the progressivity of the tax substantially. However, the additional progressivity comes at the cost of substantial tax revenue.

Suggested Citation

  • Gilbert E. Metcalf, 1994. "Lifecycle vs. Annual Perspectives on the Incidence of A Value Added Tax," NBER Working Papers 4619, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4619
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    1. B. Douglas Bernheim, 1987. "Ricardian Equivalence: An Evaluation of Theory and Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 263-316, National Bureau of Economic Research, Inc.
    2. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, March.
    3. David M. Cutler & Lawrence F. Katz, 1991. "Macroeconomic Performance and the Disadvantaged," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 1-74.
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    Cited by:

    1. Ruud de Mooij & Michael Keen, 2012. ""Fiscal Devaluation" and Fiscal Consolidation: The VAT in Troubled Times," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 443-485, National Bureau of Economic Research, Inc.
    2. Chun-Yan Kuo & Hatice Jenkins & Glenn Jenkins, 2006. "Is The Value Added Tax Naturally Progressive?," Working Paper 1059, Economics Department, Queen's University.
    3. Stanislav Klazar & Barbora Slintáková & Slavomíra Svátková & Martin Zelený, 2007. "Incidence of the VAT Rates Harmonisation in the Czech Republic [Dopad harmonizace sazeb DPH v ČR]," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2007(1), pages 45-56.
    4. Cossio Muñoz, Fernando, 2006. "Informe de Equidad Fiscal de Bolivia: Incidencia Distributiva de la Política Fiscal [Social Incidence of the Fiscal Policy in Bolivia]," MPRA Paper 91343, University Library of Munich, Germany.
    5. Barbora Slintáková & Stanislav Klazar, 2010. "Impact of Harmonisation on Distribution of VAT in the Czech Republic," Prague Economic Papers, Prague University of Economics and Business, vol. 2010(2), pages 133-149.
    6. William G. Gale & Samuel Brown, 2013. "Tax Reform for Growth, Equity, and Revenue," Public Finance Review, , vol. 41(6), pages 721-754, November.
    7. Thomas, Alastair, 2015. "The Distributional Effects of Consumption Taxes in New Zealand," Working Paper Series 4668, Victoria University of Wellington, Chair in Public Finance.
    8. Gale, William G., 2020. "Raising Revenue with a Progressive Value-Added Tax," MPRA Paper 99197, University Library of Munich, Germany.
    9. Petr David, 2019. "Optimization of Gini Coefficient Affected by Imperfect Input Data," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 5(1), pages 21-29.

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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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