Consumption Taxes and Economic Efficiency in a Stochastic OLG Economy / Shinichi Nishiyama, Kent Smetters.

Format:

Book

Author/Creator:

Nishiyama, Shinichi.

Contributor:

Smetters, Kent.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9492.

NBER working paper series no. w9492

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Washington, DC : Congressional Budget Office, [2002]

Summary:

Fundamental tax reform is examined in a heterogeneous overlapping-generations (OLG) model in which agents face idiosyncratic earnings shocks and uncertain life spans. Following Auerbach and Kotlikoff (1987), a Lump-Sum Redistribution Authority is used to rigorously examine efficiency gains over the transition path. A progressive income tax is replaced with a flat consumption tax (for example, a value-added tax or a national retail sales tax). If shocks are insurable (that is, no risk), this reform improves (interim) efficiency, a result consistent with the previous literature. But if, more realistically, shocks are uninsurable, this reform reduces efficiency, even though national wealth and output increase over the entire transition path. This efficiency loss, in large part, stems from reduced intragenerational risk sharing that was previously provided by the progressive tax system

Notes:

February 2003.

Includes bibliographical references (pages 41-43).

Print version record

OCLC:

707619628