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The Consumption Tax and the Saving Elasticity

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  • Seidman, Laurence S.
  • Lewis, Kenneth A.

Abstract

It is often assumed that if an income tax is converted to a consumption tax, the resulting change in the capital/labor ratio of the economy depends on the saving elasticity (the response of individual saving to the interest rate). In one standard life-cycle growth model, we show that, though this is correct in the short run, it is incorrect in the long run: conversion to a consumption tax always raises the steady-state capital/labor ratio, and the increase is the same regardless of the saving elasticity (positive, zero, or negative). In this model, a particular steady state is compatible with very different saving elasticities.

Suggested Citation

  • Seidman, Laurence S. & Lewis, Kenneth A., 1999. "The Consumption Tax and the Saving Elasticity," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(1), pages 67-78, March.
    • Handle: RePEc:ntj:journl:v:52:y:1999:i:1:p:67-78
    DOI: 10.1086/NTJ41789376
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    References listed on IDEAS

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    1. Dunning, Professor A., 1993. "Rationing America's medical care: The Oregon plan and beyond : By M. Strosberg, J. Wiener, R. Baker and A. Fein (Eds.) Washington, D.C., The Brookings institution 238 pp., 1992, ISBN 0-8157-8197-0, $1," Health Policy, Elsevier, vol. 24(2), pages 195-194, May.
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    Cited by:

    1. Patrick A. Imam, 2015. "Shock from Graying: Is the Demographic Shift Weakening Monetary Policy Effectiveness," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 20(2), pages 138-154, March.
    2. Laurence S. Seidman & Kenneth A. Lewis, 2003. "The Later You Pay, the Higher the k," Southern Economic Journal, John Wiley & Sons, vol. 69(3), pages 560-577, January.
    3. Laurence Seidman, 2013. "Overcoming the Fiscal Trilemma with Two Progressive Consumption Tax Supplements," Public Finance Review, , vol. 41(6), pages 824-851, November.
    4. James Alm & Asmaa El-Ganainy, 2013. "Value-added taxation and consumption," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(1), pages 105-128, February.
    5. Lewis, Kenneth A. & Seidman, Laurence S., 2001. "The Consumption Tax and Transitional Relief," Journal of Macroeconomics, Elsevier, vol. 23(1), pages 99-120, January.
    6. Kenneth A. Lewis & Laurence S. Seidman, 2002. "Funding Social Security: The Transition in a Life-Cycle Growth Model," Eastern Economic Journal, Eastern Economic Association, vol. 28(2), pages 159-180, Spring.
    7. Iswahyudi, Heru, 2018. "Where has the money gone?: The case of Value Added Tax revenue performance in Indonesia," MPRA Paper 89876, University Library of Munich, Germany.

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