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Economic Effects of a Personal Capital-Income Tax Add-On to a Flat Tax

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  • John W. Diamond
  • George R. Zodrow

Abstract

Although much academic and policy discussion has focused on replacing the income tax with a consumption-based tax, very few consumption-based direct tax reforms have been enacted. Much more common are approaches that reduce the level of capital-income taxation under an income tax, including the current Nordic dual income taxes and broadly similar approaches recently proposed in Germany, Switzerland, and the United States. This paper examines the general economic case for such reforms and then reports the results of a simulation of the economic effects of implementing such a capital-income add-on tax to a flat tax structure in the U.S.

Suggested Citation

  • John W. Diamond & George R. Zodrow, 2007. "Economic Effects of a Personal Capital-Income Tax Add-On to a Flat Tax," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(3), pages 374-395, September.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200709)63:3_374:eeoapc_2.0.tx_2-v
    DOI: 10.1628/001522107X250113
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    References listed on IDEAS

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    1. Fullerton, Don, 1982. "On the possibility of an inverse relationship between tax rates and government revenues," Journal of Public Economics, Elsevier, vol. 19(1), pages 3-22, October.
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    4. A. J. Auerbach & M. Feldstein (ed.), 2002. "Handbook of Public Economics," Handbook of Public Economics, Elsevier, edition 1, volume 4, number 4.
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    Citations

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    Cited by:

    1. Keuschnigg, Christian & Keuschnigg, Mirela, 2012. "Transition Strategies in Enacting Fundamental Tax Reform," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(2), pages 357-385, June.
    2. Richard Ochmann, 2014. "Differential income taxation and household asset allocation," Applied Economics, Taylor & Francis Journals, vol. 46(8), pages 880-894, March.
    3. Zodrow, George R. & Diamond, John W., 2013. "Dynamic Overlapping Generations Computable General Equilibrium Models and the Analysis of Tax Policy: The Diamond–Zodrow Model," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 743-813, Elsevier.
    4. John W. Diamond & George R. Zodrow, 2013. "Promoting Growth, Maintaining Progressivity, and Dealing with the Fiscal Crisis," Public Finance Review, , vol. 41(6), pages 852-884, November.
    5. Charles E. McLure, Jr. & George R. Zodrow, 2007. "Consumption-based Direct Taxes: A Guided Tour of the Amusement Park," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(2), pages 285-307, June.
    6. John W. Diamond & George R. Zodrow & Thomas S. Neubig & Robert J. Carroll, 2014. "The Dynamic Economic Effects of a US Corporate Income Tax Rate Reduction," Working Papers 1405, Oxford University Centre for Business Taxation.
    7. Aylit Tina Romm, 2017. "Retirement date effects on saving behavior: Endogenous labor supply and non-separable preferences," International Journal of Economic Theory, The International Society for Economic Theory, vol. 13(3), pages 327-346, September.

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    More about this item

    Keywords

    income tax reform; dual income tax; flat tax; add-on personal capital-income tax; dynamic modeling; overlapping-generations computable general-equilibrium model;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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