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From Income Tax to Consumption Tax? The Case of Jamaica

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Abstract

Over the past decade, a number of countries have shifted to single rate tax systems with broader bases and lower rates. In the U.S. , there continues to be discussion of the merits of a consumption tax, and of base-broadening reforms to the income tax system. The objective of this paper is to demonstrate how, over time, a conventional income tax could be converted to a flat rate consumption tax in a developing country. The value of this analysis, we hope, comes with the use of a real world situation ( Jamaica ), which allows us to focus on the detail that determines the feasibility of transitioning to a flat rate tax on consumption. Our main contribution is to show the conditions under which the switch can be revenue neutral.

Suggested Citation

  • Roy Bahl & Sally Wallace, 2007. "From Income Tax to Consumption Tax? The Case of Jamaica," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0712, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:ays:ispwps:paper0712
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    1. Mr. Ricardo Varsano & Kevin Kim & Mr. Michael Keen, 2006. "The "Flat Tax(es)": Principles and Evidence," IMF Working Papers 2006/218, International Monetary Fund.
    2. 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.
    3. James Alma & Jorge Martinez-Vazquez & Friedrich Schneiderb, 2005. "'Sizing' the Problem of the Hard-to-Tax," Contributions to Economic Analysis, in: Taxing the Hard-to-tax: Lessons from Theory and Practice, pages 11-75, Emerald Group Publishing Limited.
    4. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    5. Dillon Alleyne & James Alm & Roy Bahl & Sally Wallace, 2004. "Tax Burden in Jamaica," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0434, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    6. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
    7. Richard Bird & Pierre-Pascal Gendron, 2006. "Is VAT the Best Way to Impose a General Consumption Tax in Developing Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0618, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    8. Zodrow, George R. & McLure, Charles E. Jr., 1988. "Implementing direct consumption taxes in developing countries," Policy Research Working Paper Series 131, The World Bank.
    9. Thomas F. Rutherford & Miles K. Light & Felipe Barrera Osorio, 2003. "Equity and effciency costs of raising tax revenue in Colombia," Informes de Investigación 2583, Fedesarrollo.
    10. Sally Wallace & James Alm, 2004. "The Jamaican Individual Income Tax," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0430, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
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    Cited by:

    1. Daniel Lederman & Justin T. Lesniak, 2018. "Open and Nimble," World Bank Publications - Books, The World Bank Group, number 28544.
    2. Sally Wallace, 2010. "Can Georgia Move from Income Tax to Consumption Tax?," Chapters, in: Sally Wallace (ed.), State and Local Fiscal Policy, chapter 7, Edward Elgar Publishing.

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    More about this item

    Keywords

    Income Tax; Consumption Tax; Jamaica; Jamaica tax system;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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