Showing papers on "Consumption tax published in 1987"

Tax policy and consumer foresight: a general equilibrium simulation study

Abstract: This paper presents a dynamic computational general equilibrium model in which expectations regarding future prices can be varied systematically. The model is employed to evaluate how expectations influence the effect of long-run tax policy changes. Under policies (like a consumption tax) that reduce rates of return over time, individuals with perfect foresight save less than individuals with myopic beliefs. This is because consumers with foresight are better able to anticipate the lower returns. Lower saving means that existing distortions due to capital taxes are not offset as much, so that welfare gains are smaller under perfect foresight.

Tax Policies and the Financially Constrained Farm Household

Abstract: This article analyzes the implications of income, profit, and consumption taxes on the economic decisions of financially constrained farm households within a dynamic intertemporal framework. The most important results are that replacing a profits tax with a consumption tax would lead to increases in on-farm work, farm income, and farm production in the short run. Capital accumulation would be enhanced leading to similar effects in the long run. If an income tax is replaced with a consumption tax, similar expansive effects would occur in the intermediate and long run, but in the short run there would be no effect on farm production.

The Rhetoric of the Anti-Progressive Income Tax Movement: A Typical Male Reaction

Abstract: This title is not exactly true; it's not exactly false either.' It contains a truth that has been shaped by my preferences (or, if you wish, my biases, philosophy, or prejudices) and by my desire to grab the reader's attention and force him (and I mean him) to reach a specific conclusion. It is, in short, rhetoric. In that respect it is not unlike many of the arguments now popularly raised against the progressive income tax. My argument differs from many others in its open acknowledgment of the use of rhetoric. The progressive income tax is currently under siege. This is a new phenomenon: new not in the fact of the opposition itself, but in the extent of the opposition. In 1913, the general public, economists, and politicians argued about the exact schedule of rates and exemptions,2 but the idea of graduated or progressive rates was accepted with surprising ease and generally has remained unquestioned ever since.3 The economic and political consensus about progressivity began to fall

Value added tax at the state level

Abstract: The paper canvasses options for imposition of a value added tax (VAT) at the state level and contrasts them with a single stage retail sales tax. It describes one option: a joint national-state VAT with rates variable across the state which is similar to the one proposed in Cnossen and Shoup (1985) for the European Economic Community (EEC). This option best satisfies the four basic objectives that a state level tax should optimally fulfill: it provides considerable fiscal flexibility to subnational governments without sacrificing the advantages of a single uniform tax across the country.

Problems in administering a value-added tax in developing countries : an overview

Abstract: The paper begins by listing VAT rates and revenue importance in developing countries. It attempts to summarize the main features of VAT administration in developing countries, highlighting those aspects that most strongly affect the success with which the tax is implemented. The author cautions economists that the diversity that exists among developing countries allows very few generalizations. What is clear, however, is that administrative considerations have exerted considerable influence on the structure of VAT in developing countries. In some instances the introduction of VAT has served to galvanize tax administrations and force them to modernize procedures that otherwise might have remained unchanged for years.

Section 1031: We Don't Need Another Hero

Abstract: This Article critiques current Internal Revenue Code section 1031 which provides for the non-recognition of gain on the exchange of “like-kind” property Part I begins with a chronological history of Section 1031 and a summary of the traditional rationales for the section and the acknowledged flaws in those explanations It then proceeds to an in depth analysis of several hypotheses as to the section's origins Part I concludes that several factors collectively led to the enactment of section 1031, including confusion about the realization doctrine, a sympathy for a consumption tax, reflected in a variety of ways, and a conscious decision by Congress to use the tax laws to promote economic growth Part II evaluates the unintended effects, both positive and negative, of the provision It concludes that any benefits of section 1031 are attained only at a high cost The section is inequitable, inefficient and contradicts our present notions of income Furthermore, its benefits can be better achieved, at less cost, through other methods Consequently, the provision should not remain in the Code in its present form The proper form of section 1031 depends both upon close analysis of economic and equitable considerations, and upon administrative and political practicalities The most important choice is whether to retain an income tax or switch to a consumption-based tax If Congress decides to switch to a consumption-based tax, then section 1031 is not needed at all An expenditure tax is the ultimate section 1031 since all investments (whether like-kind or not) result in deferral Section 1031 is simply subsumed by the tax If Congress retains an income tax, several possibilities exist The most extreme is complete abolition of the section Even if this were accomplished, however, a narrow range of exchanges would still be nontaxable under the basic sales and exchange provision of section 1001 Less extreme options include using a section 1033 functional similarity test for non-recognition exchanges or providing lower rates for all investment rolloversThe inconsistencies within section 1031 reflect both the often poorly understood nature of these factors and the political compromise necessary to enact the law The original factors involved in its enactment, confused to begin with, do not stand up against today's concepts of income, nor against sixty years of experience with the section Section 1031 is inefficient, inequitable, and a revenue loser The section should be repealed or drastically altered

Optimal Lifetime Consumption Paths under Equal Yield Income and Consumption Taxes

Abstract: Excess burden of an equal-yield, flat-rate tax is studied with the aid of a dynamic model. An individual seeks a consumption rate which maximizes the discounted utility stream over a finite period of known length. With supply of labor but not of savings fixed, government extracts a given amount of revenue through an income or a consumption tax. Income taxation induces early consumption, taxation of consumption early asset accumulation. The latter is higher under a consumption tax. The intertemporal excess burden is lower with a consumption tax. This finding was confirmed in two special cases.

Coordination of taxes on capital income in developing countries

Abstract: This paper is addressed to the problem of the coordination of capital income taxes for developing countries. Taxes considered include company taxes and withholding taxes on dividends. The paper examines the objectives of coordination from the perspective of the developing countries and goes on to suggest the contours which such a coordinated system might have. Finally, it develops a tax coordination model by combining successive coordinating measures involving the developed capital exporting countries and a coordinating association of less developed country (LDC) members. Certain components of those tax measures may exceed present administrative capabilities of the LDC's or their willingness to achieve the required degree of political cooperation. However, it is nevertheless useful to define the tax measures which are called for in a full-scale coordination model in order to make explicit the institutional dimensions of the problem.

Welfare Effects of Capital Income Taxation under Variable and Fixed Labor Supply

Abstract: Not every model of economic behavior can allow for variable labor supply. When attention is focused on other economic issues, the effect on welfare change measurement of assuming labor to be in fixed supply becomes important. The traditional view is that allowing labor supply to be variable will reduce the measured benefits of replacing an interest income tax with a payroll or consumption tax, owing to the introduction (or increase in) a static distortion between consumption and leisure. However, this view ignores two mechanisms by which variable labor supply may actually increase the benefits of relaxing the capital income tax. First, an interest income tax distorts the intertemporal path of leisure, and thus of labor supply. Second, as explained below, the interest elasticity of savings may be augmented by changes in the intertemporal labor supply path. Eliminating the labor supply path distortion and increasing capital accumulation can provide benefits which may potentially exceed the disadvantages of increased static distortion. This paper tests which effects dominate by simulation in a life cycle growth model. Previous papers have not addressed these issues. Feldstein [3] discusses welfare measurement in a two-period model in which an individual supplies labor in the first period and consumes in both periods. Feldstein's partial equilibrium efficiency measure incorporates the elasticity of labor supply with respect to the interest rate, but his single period of labor supply may be misleading. Summers [8] demonstrates that in multi-period models interest rate changes may have a large effect upon the present value of lifetime resources (human wealth) and, consequently, consumption. That finding, when applied to frameworks allowing for leisure consumption, implies that both the compensated and uncompensated elasticities of labor supply with respect to the interest rate may be markedly different for multi-period than for one period labor supply models. Summers exploits a multi-period life cycle growth model to measure numerically the steady state efficiency gains following an elimination of interest income taxation. He assumes labor to be fixed in supply at each moment. Consequently, changes in human wealth cannot affect the leisure profile and the benefits of eliminating intertemporal leisure distortions are not captured. Summers concludes that steady state consumption and welfare would increase

Optimal Countervailing Intervention

Abstract: This paper examines the optimal countervailing measures in response to foreign subsidy. Two alternative objectives are considered: (1) to maintain the domestic producer price, or (2) to maintain the initial import level. Three different instruments are discussed: a tariff, a production subsidy, and a consumption tax. Their rankings in terms of welfare costs are established. One important finding is that, contrary to present convention, the optimal countervailing rate may have to exceed the foreign subsidy rate. [411]