Consumption Taxes and Redistribution
American Economic Review · 2010 · Volume 100 · Issue 4
Abstract
This study considers replacing the current US tax system with only a flat tax consumption tax, showing, in contrast to the literature, that such a reform leads to a decline in inequality and increase in welfare for the welfare-poor. The results are obtained from a simple model that identifies the main channels through which the reform affects the economy. It is shown also that these novel results depend on the distribution of wealth and earnings, and that they hold for the relevant empirical distributions. (JEL D31, H23, H25)
Keywords
Personal Income, Wealth, and Their Distributions, Taxation and Subsidies: Externalities, Redistributive Effects, Environmental Taxes and Subsidies, Business Taxes and Subsidies including sales and value-added (VAT)
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