Changing Tax Bases in a Model of Endogenous Tax Reform
1989 (English)Report (Other academic)
This paper presents a model of optimal taxation that is useful for understanding governments' incentives to switch from wage to consumption taxation. The key ingredient is the fact that governments cannot precommit policy: although under precommitment governments would tax only wages, there is an (ex post) incentive to switch to the consumption tax as savings grows. Numerical examples for a nested CES utility function find that for reasonable parameter values, equilibrium features a switch to consumption taxation: in particular, the model produces this tax reform when parameterized as in Auerbach and Kotlikoff's (1987) study.
Place, publisher, year, edition, pages
Stockholm: IIES , 1989. , 31 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 451
IdentifiersURN: urn:nbn:se:su:diva-41636OAI: oai:DiVA.org:su-41636DiVA: diva2:331625
Published in connection with a visit at the IIES.2010-07-232010-07-232010-07-23