Macroeconomic and redistributional effects of consumption taxes in the usa

Sagiri Kitao

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

This paper studies the effect of an increase in consumption taxes using a dynamic general equilibrium model of overlapping generations calibrated to the US economy. When the proceeds are used to reduce income taxes, the reform raises the aggregate capital and labour supply in the long run. Workers increase labour supply immediately in response to the reform, while consumption rises only gradually. The tax reform also transfers wealth from old consumers to young consumers. As a result, while future generations experience significant welfare gains, current generations, particularly old consumers, tend to experience sizable welfare losses. When the proceeds are used for a lump-sum transfer, the aggregate capital and labour both decrease in the long run. This reform is welfare-improving for the current low-income households.

Original languageEnglish
Pages (from-to)63-81
Number of pages19
JournalJapanese Economic Review
Volume62
Issue number1
DOIs
Publication statusPublished - 2011 Mar
Externally publishedYes

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Consumption tax
Macroeconomics
Labor supply
Older consumers
Labor
US economy
Workers
Income tax
Overlapping generations
Tax reform
Low income
Wealth transfer
Dynamic general equilibrium model
Welfare gains
Household
Young consumers
Welfare loss

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Macroeconomic and redistributional effects of consumption taxes in the usa. / Kitao, Sagiri.

In: Japanese Economic Review, Vol. 62, No. 1, 03.2011, p. 63-81.

Research output: Contribution to journalArticle

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