Neglected Effects on the Uses Side: Even a Uniform Tax Would Change Relative Goods Prices

18 Pages Posted: 20 Sep 2000 Last revised: 5 Oct 2010

See all articles by Don Fullerton

Don Fullerton

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Diane Lim Rogers

Joint Economic Committee, Democratic Staff

Date Written: February 1997

Abstract

Fundamental tax reform may change relative prices of consumption goods and may therefore have important effects on the uses side that are ignored by most general equilibrium simulation models. For a uniform rate of tax, in our model, results on the uses side are driven by the nonuniform tax system being replaced. Similar effects occur under any uniform and comprehensive tax reform, whether the current system is replaced by a consumption tax, a wage tax, or a pure income tax. Any such reform that eliminates the current preferential treatment of housing would impose an additional one-time levy on the elderly, and any reform that eliminates the current double taxation of corporate capital would reduce the relative prices of corporate-capital-intensive goods bought by the poor.

Suggested Citation

Fullerton, Don and Lim Rogers, Diane, Neglected Effects on the Uses Side: Even a Uniform Tax Would Change Relative Goods Prices (February 1997). NBER Working Paper No. w5937. Available at SSRN: https://ssrn.com/abstract=225718

Don Fullerton (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 244-3621 (Phone)

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

Diane Lim Rogers

Joint Economic Committee, Democratic Staff ( email )

Ford House Office Building
2nd & D Streets, SW
Washington, DC 20515
United States
202 224 5171 (Phone)

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