Book contents
- Frontmatter
- Contents
- List of Contributors
- Preface
- 1 Introduction: The Fundamental Question in Fundamental Tax Reform
- 2 Behavioral Responses to a Consumption Tax
- 3 The Economic Impact of Fundamental Tax Reform
- 4 Capital Income Taxation in Tax Reform: Implications for Analysis of Distribution and Efficiency
- 5 International Aspects of Fundamental Tax Reform
- 6 Distributive Analysis of Fundamental Tax Reform
- 7 The Role of Administrative Issues in Tax Reform: Simplicity, Compliance, and Administration
- 8 Evaluating the National Retail Sales Tax from a VAT Perspective
- 9 Transitional Issues in the Implementation of a Flat Tax or a National Retail Sales Tax
- 10 Historical and Contemporary Debate on Consumption Taxes
- 11 The Politics and Ideology of Fundamental Tax Reform
- Bibliography
- Index
3 - The Economic Impact of Fundamental Tax Reform
Published online by Cambridge University Press: 23 October 2009
- Frontmatter
- Contents
- List of Contributors
- Preface
- 1 Introduction: The Fundamental Question in Fundamental Tax Reform
- 2 Behavioral Responses to a Consumption Tax
- 3 The Economic Impact of Fundamental Tax Reform
- 4 Capital Income Taxation in Tax Reform: Implications for Analysis of Distribution and Efficiency
- 5 International Aspects of Fundamental Tax Reform
- 6 Distributive Analysis of Fundamental Tax Reform
- 7 The Role of Administrative Issues in Tax Reform: Simplicity, Compliance, and Administration
- 8 Evaluating the National Retail Sales Tax from a VAT Perspective
- 9 Transitional Issues in the Implementation of a Flat Tax or a National Retail Sales Tax
- 10 Historical and Contemporary Debate on Consumption Taxes
- 11 The Politics and Ideology of Fundamental Tax Reform
- Bibliography
- Index
Summary
In this chapter we present a new intertemporal general equilibrium model for analyzing the economic impact of tax policies in the United States. We preserve the key features of more highly aggregated models like that of Jorgenson and Yun (1990, 1991a). One important dimension for disaggregation is to introduce a distinction between industries and commodities in order to model business responses to tax-induced price changes. We also distinguish among households by level of wealth and demographic characteristics, so that we can model differences in household responses to tax changes and examine the distributional effects of taxes.
We model demands for different types of capital services in each of thirty-five industrial sectors of the U.S. economy and the household sector. These demands depend on tax policies through measures of the cost of capital presented by Jorgenson and Yun (1991b) that incorporate the characteristic features of U.S. tax law. The cost of capital makes it possible to represent the economically relevant features of highly complex tax statutes in a very succinct form. The cost of capital also summarizes information about the future consequences of investment decisions required for current decisions about capital allocation.
To illustrate the application of our new model, we simulate the economic impacts of fundamental tax reforms. We focus on the effects of substituting a tax on consumption for corporate and individual income taxes at the federal, state, and local levels.
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- United States Tax Reform in the 21st Century , pp. 55 - 88Publisher: Cambridge University PressPrint publication year: 2002
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