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The Lifetime Incidence Of Consumption Sales Taxes

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  • Adams, Roy D.
  • Walker, David J.

Abstract

Consumption sales taxes are regressive in terms of annual income, but the shortcomings of annual data motivate analysis of tax incidence over a longer time interval. Two widely read public finance textbooks contain mistakes regarding the^effect of different lifetime consumption profiles on consumption sales tax proportionality. This paper concludes that consumption sales taxes would be proportional in lifetime terms if all individuals eventually consumed their entire lifetime incomes. However, monetary gifts and bequests escape the tax and make horizontal inequities and lifetime non-proportionality likely. Augmenting the tax with equal-rate taxes on gifts and bequests would ensure lifetime proportionality among all individuals regardless of their lifetime consumption profiles, gift givings, and estates.

Suggested Citation

  • Adams, Roy D. & Walker, David J., 1977. "The Lifetime Incidence Of Consumption Sales Taxes," ISU General Staff Papers 197712010800001043, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:197712010800001043
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    References listed on IDEAS

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    1. Antal Deutsch, 1975. "On the Taxation of Life Income," Public Finance Review, , vol. 3(4), pages 299-319, October.
    2. Feldstein, Martin, 1976. "On the theory of tax reform," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 77-104.
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