Abstract

http://ssrn.com/abstract=226006
 
 

Citations (19)



 


 



Simulating U.S. Tax Reform


David Altig


Federal Reserve Banks - Federal Reserve Bank of Atlanta; Federal Reserve Bank of Cleveland; University of Chicago - Booth School of Business

Alan J. Auerbach


University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Laurence J. Kotlikoff


Boston University - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Kent A. Smetters


University of Pennsylvania - Business & Public Policy Department; National Bureau of Economic Research (NBER)

Jan Walliser


Congressional Budget Office

October 1997

NBER Working Paper No. w6248

Abstract:     
This paper uses a new large-scale dynamic simulation model to compare the equity, efficiency, and macroeconomic effects of five alternative to the current U.S. federal income tax. These reforms are a proportional income tax, a proportional consumption tax, a flat tax, a flat tax with transition relief, and a progressive variant of the flat tax called the 'X tax.' The model incorporates intragenerational heterogeneity and kinked budget constraints. It predicts major macroeconomic gains (including an 11 percent increase in long-run output) from replacing the federal tax system with a proportional consumption tax. Future middle- and upper-income classes gain from this policy, but initial older generations are hurt by the policy's implicit capital levy. Poor members of current and future generations also lose. The The flat tax, which adds a standard deduction to the consumption tax, makes all members of future generations better off, but at a cost of halving the economy's long-run output gain and harming initial older generations. Insulating these older generations through transition relief further reduces transition relief further reduces the long-run gains from tax reform. Switching to a proportional income tax without deductions and exemptions hurts current and future low lifetime earners, but helps everyone else. It also raises long-run output by over 5 percent. The X tax makes everyone better off in the long-run and also raises long-run output by 7.5 percent. But it harms initial older generations who bear its implicit wealth tax.

Number of Pages in PDF File: 58

working papers series





Download This Paper

Date posted: May 25, 2006  

Suggested Citation

Altig, David and Auerbach, Alan J. and Kotlikoff, Laurence J. and Smetters, Kent A. and Walliser, Jan, Simulating U.S. Tax Reform (October 1997). NBER Working Paper No. w6248. Available at SSRN: http://ssrn.com/abstract=226006

Contact Information

David Altig
Federal Reserve Banks - Federal Reserve Bank of Atlanta
1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
Federal Reserve Bank of Cleveland ( email )
East 6th & Superior
Cleveland, OH 44101-1387
United States
216-579-2041 (Phone)
University of Chicago - Booth School of Business
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
Alan Jeffrey Auerbach (Contact Author)
University of California, Berkeley - Department of Economics ( email )
549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-643-0711 (Phone)
510-643-0413 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Poschinger Str. 5
Munich, DE-81679
Germany
Laurence J. Kotlikoff
Boston University - Department of Economics ( email )
270 Bay State Road
Boston, MA 02215
United States
617-353-4002 (Phone)
617-353-4449 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Kent Smetters
University of Pennsylvania - Business & Public Policy Department ( email )
3641 Locust Walk
Philadelphia, PA 19104-6372
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Jan Walliser
Congressional Budget Office ( email )
Ford House Office Building
2nd & D Streets SW
Washington, DC 20515
United States
Feedback to SSRN


Paper statistics
Abstract Views: 2,075
Downloads: 48
Citations:  19

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo3 in 0.516 seconds