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This study investigates indirect tax shocks' influences on GDP and inflation in Iran’s economy, using a DSGE (Dynamic Stochastic General Equilibrium) model. The results indicate that a shock cause equal to one standard deviation in tax on consumption can reduce GDP by 0.006% and inflation by 0.018%. Also, a shock in the import tax causes the GDP to decrease by 0.089% due to the decrease in demand for imported goods. Moreover, imported goods reduce by 0.4% with the occurrence of import tax shock; meanwhile, inflation increases by 0.89% in the short term. Accordingly, a possible reform for indirect taxes should be more carefully considered., Bu çalışma, İran ekonomisinde dolaylı vergi şoklarının GSMH ve enflasyon üzerindeki etkilerini bir DSGD (Dinamik Stokastik Genel Denge) modeli kullanarak incelemektedir. Sonuçlar, tüketim vergisindeki standart sapmaya eşit bir şok nedeninin GSMH'yı %0,006 ve enflasyonu %0,018 azaltabileceğini göstermektedir. İthalat üzerinden alınan vergilerdeki bir şok ise, ithal mallara olan talebin azalması nedeniyle GSMH'nın %0,089 oranında düşmesine neden olmaktadır. Ayrıca, ithalat üzerinden alınan vergi şokunun meydana gelmesiyle ithal mallar %0,4 oranında azalırken; enflasyon kısa vadede %0,89 artmaktadır. Bu bağlamda, dolaylı vergiler için olası bir reform çalışması yapılırken daha dikkatli bir şekilde konu ele alınmalı ve tartışılmalıdır.

We develop a general theory of state-dependent fiscal multipliers in a framework featuring interaction between two empirically relevant goods market frictions: idle productive capacity and unsatisfied demand. Our key novel finding is that the source of economic fluctuations determines the cyclicality of fiscal multipliers. Policies that stimulate aggregate demand, such as government spending and consumption tax cuts, have multipliers that are large in demand-driven recessions, but small and possibly negative in supply-driven downturns. On the other hand, policies that boost aggregate supply, such as cuts in taxes on labor income and firms’ payroll and sales, are ineffective in demand-driven recessions, but powerful if the downturn is driven by supply factors. Spending austerity, implemented by a reduction in government consumption, can be the policy with the largest multiplier in severe supply-side recessions and demand-driven booms, provided elasticities of labor demand and supply are sufliciently low. We obtain model-free empirical support for our theoretical predictions by using a novel econometric specification that allows us to estimate spending and tax cut multipliers in recessionary and expansionary episodes, conditional on those being either demand- or supply-driven.

This study examined the stabilization effect of fiscal policy on banking system stability in Nigeria using data from 1985 to 2019. The study adopted the ordinary least squares, cointegration and error correction techniques to analyze and determine the existence of a long-run relationship among the variables. The ordinary least squares technique was used to evaluate the impact of the interaction between fiscal policy and banking system stability variables. The findings indicate that fiscal policy has a strong influence on banking system stability in Nigeria. It was further discovered that, among the fiscal policy variables, taxation and government debt have a more positive effect on banking systems than other variables used in the study, while government funding and debt growth have a negative effect on banking system stability. This indicates that the more debt the government accumulates, the greater the instability of the banking system. The study recommends that the government put appropriate controls in place to avoid borrowing that will creep into deficit, which will, in turn, affect the banking system stability. The government should also ensure that its borrowings are channeled into productive segments of the economy to enhance the sustainable repayment of debt and ensure that the mechanisms for debt repayment are strictly adhered to.

This paper studies the effects of consumption tax reforms on prices and the time path of consumption spending in EU countries utilizing micro-level data on the monthly unit sales and prices of consumer durables. The identification strategy exploits the trading of identical products in multiple countries. The results show that tax-rate changes are fully and quickly shifted into prices and strongly affect the time path of consumption. The empirical findings for consumption spending indicate that tax rate changes exert temporary effects shortly before implementation, which are more than reverted after implementation. Quantitatively, we find that sales increase by about 2.5% in the last month before and drop by almost 5% after implementation if the tax rate increases by one percentage point.

This paper examines the efficiency of destination-and origin-based consumption taxes, in the presence of consumption generated perfect cross-border pollution spillovers, when tax revenue either finances public pollution abatement or it is lump-sum distributed. When consumption tax revenue finances the provision of public pollution abatement and regions have identical and quasi-linear preferences then, the non-cooperative equilibrium origin-based consumption taxes are efficient, while the destination-based consumption taxes are inefficiently low. When, however, consumption tax revenue is lump-sum distributed, then, the destination-based tax principle leads to inefficiently low taxes, while the origin-based tax principle leads either to inefficiently high or low taxes.

This paper evaluates the first two arrows of Abenomics. The first arrow, aggressive monetary policy, was successful in lifting the Japanese economy out of deflation, although the 2% inflation target was not achieved. The real economy and financial markets recovered strongly. Unconventional monetary policy was successful through the channels of the yen and stock prices. The second arrow, “flexible” fiscal policy, can be interpreted as an enhanced counter‐cyclical policy, that is, to stimulate when needed, but tighten when possible. The first fiscal supplementary budget of February 2013 was a powerful boost to the economy. For fiscal consolidation, the consumption tax rate was hiked from 5% to 10% in two installments in April 2014 and October 2019. This helped to shrink the deficits. With strong macroeconomic performances, Shinzo Abe established a record as the longest‐serving prime minister in Japanese history.

The purpose of this article is to present and assess the impact of a standard VAT rate on fiscal revenues of the European Union Member States. The article follows the method of economic statistical analysis and offers a review of available literature on the subject. The basic VAT rates of the European Union countries are presented, compared and correlated with tax revenues related to consumption taxes in the years 2005–2019. These years were chosen for analysis because of the biggest European Union enlargement which took place during 2004. A statistical analysis was conducted. The data of a correlation coefficient for each country and the dynamics indicators were calculated. The results of the statistical analysis for Member States were interpreted. The article assesses the relationship between the standard VAT rate and the share of consumption tax revenues in GDP.

This paper studies the macroeconomic and welfare implications of the distribution of the social security tax between employees and employers using a general equilibrium framework. We calibrate a dynamic general equilibrium model for the average of OECD countries and find that increasing the share of social security contributions paid by employers has a positive effect on economic activity and welfare. Whereas raising the employer’s share increases the labor cost for firms and reduces the equilibrium gross wage, conversely, workers’ net labor income increases, increasing employment, output, and welfare. The response of the economy to the change in the distribution of social security contributions between employees and employers depends on how the total labor tax wedge changes, which is also affected by the labor income tax and the consumption tax, as distortionary effects from one tax are not independent from the other taxes driving wages’ purchasing power.

The 2018 US Supreme Court decision in South Dakota v. Wayfair is arguably the court’s most consequential state tax decision in a generation, perhaps longer. The Wayfair decision overturned the Supr...

In this paper, we investigate the ex ante effects of fiscal policy harmonization that might be necessary for the adoption of the common currency on economic growth in Poland using a neoclassical dynamic two-sector general equilibrium model. We study two fiscal policy scenarios. In the first one, we adjust all taxes to German and EU-27 levels, respectively, while in the second one, we change only consumption taxes to German and EU-27 levels. We find that in the first scenario, the current Polish taxes yield the highest rate of growth due to lower capital taxation. However, in the second scenario, German and EU-27 taxes yield the highest rate of growth due to the lower consumption tax on capital-intensive good. From a policy perspective, our results suggest that fiscal policy with lower taxes on capital and capital-intensive goods can generate a higher rate of growth in the long-run. In the case of fiscal harmonization, our findings propose adopting only German or EU-27 consumption tax structure into the Polish tax system.

This paper analyzes the impact of the interaction between monetary policy and fiscal policy on the stability of an one-sector AK economy. The monetary authority pegs the money growth factor while the fiscal authority implements a progressive consumption tax. The demand of money is motivated by a fractional liquidity constraint on consumption expenditures. When only the monetary authority operates, the unique steady state is locally indeterminate if the intertemporal elasticity of substitution in consumption is low enough. When the fiscal authority is introduced, the interaction of fiscal policy and monetary policy modifies significantly the stability properties. In particular, the fiscal authority could either stabilize or destabilize the economy depending on the tax progressivity, the strength of the liquidity constraint and the intertemporal elasticity of substitution. Our numerical examples further verify those theoretical results.

This paper examines the cross-border effects of domestic fiscal shocks on foreign economic activities by constructing a two-country general equilibrium model. The model yields two main results by comparing four alternative fiscal shocks: government spending, the capital income tax rate, the labor income tax rate, and the consumption tax rate. First, domestic fiscal shocks can generate sizable spillovers abroad. Second, once the size of each fiscal shock is normalized to achieve an equal change in government revenue, the spillover effects of different fiscal shocks on the foreign economic variables are qualitatively similar.

The paper examines the effect of fiscal and monetary policies on economic activities in South Africa while attempting to identify the role of uncertainty. The paper uses quarterly time series data using the variables of income tax, consumption tax, capital tax, and government expenditure to measure fiscal policy uncertainty while interest and inflation rate variables were used to measure monetary policy uncertainty. Also, real gross domestic product, real consumption, real investment, and employment were used to measure economic activities. The partial least squares structural equation model (PLS-SEM) was used for analysis and result presented for measurement and structural models. Results revealed the existence of policy uncertainty in the South African economy which tends to reduce the level of economic activity as uncertainty increases. This result informs of the need for policy makers to minimally reduce uncertainties for both fiscal and monetary policies for the economy to improve.

We develop a model that jointly determines the distribution of income and the aggregate macrodynamics. We identify multiple channels through which alternative public policies such as transfers, consumption and income taxes, and public investment will affect the inequality-efficiency trade-off. Income tax and transfers have both a direct income and an indirect substitution effect; a consumption tax has only the latter. We present extensive numerical simulations motivated by the South African National Development Plan 2030, the objective of which is to reduce soaring inequality and increase per capita GDP. Our results illustrate how the judicious combination of social grants and a consumption tax may help achieve these targets. The simulations also suggest that the sharp decline in the private-public capital ratio, coupled with a high degree of complementarity between public and private capital may help explain the persistence of market inequality in South Africa during the last two decades.

Biometric identifiers embedded in national identity cards puts a formerly impossible goal of consumption taxation within the grasp of policymakers for the first time. Never before has it been possible to design a broad-based, single rate consumption tax that is truly progressive. No consumption tax has ever had all three of the critical attributes of a progressive consumption tax: a broad base, a single rate, and measured relief for those in greatest need. Although economists have urged that a broad base and a single rate be pursued over progressivity, most consumption taxes instead seek progressivity at the expense of both base and rate considerations. The reason is entirely political. The essential problem (under the current system) is that when tax relief is granted it is universal not surgical. Thus, under most consumption taxes rich and poor alike enjoy an exemption for the purchase of food for home consumption. However, with each universal exemption - tax practice compromises tax theory without achieving progressivity. Technology offers policymakers a surgical option. Three technology-intensive developments (smart national IDs; fully digital consumption tax regimes; certified tax calculation software) make a new breed of consumption tax possible. It is a simple matter of embedding exemption certificates in smart IDs equipped with biometric identifiers, and then processing sales transactions through certified tax calculation software. Not only is the technology to do this is available today but all critical pieces have been part of successful pilot projects. The time for the progressive consumption tax has arrived.

This study develops and estimates a standard New-Keynesian DSGE model for the Ghanaian economy, for the analysis of the impacts of fiscal policy shocks on key macroeconomic variables. It also applies the model to examination of the effects of government spending, consumption tax, and labor income tax shocks on household consumption and working hours. The model features heterogeneous households of two types, financially excluded and financially included, and considers two labor markets: perfectly and monopolistically competitive labor markets. We use quarterly time series data from 1985Q1–2017Q4 to estimate the model’s parameters through Bayesian approach. Overall, we find that increased government spending has positive effects on consumption, output, employment and inflation while it turns to crowd-out consumption and to dampen the expansionary effect on output when wages are sticky. Our policy experiment results show that the presence of sticky wage dynamics in the economy requires large fraction (75%) of households who cannot participate in the financial markets in order to generate a rather short-lived positive consumption multiplier of government spending shock. At the disaggregated level, we find that positive consumption and labor income tax shocks decrease consumption by financially excluded households more than that by financially included ones. We also find that whereas financially included households decrease their working hours, financially excluded households increase their working hours in order to mitigate the negative effects of those shocks on their consumption.

Based on Ono (2010), this short note presents consideration of the consumption tax and examines how tax reform to maintain the neutrality of pension benefit affects income growth rate and the employment rate. A decrease in the contribution rate of workers with an increase in consumption tax raises employment, but the effect on income growth is ambiguous. A decrease in the contribution rate of firms with an increase in consumption tax decreases the employment and facilitates income growth.

Industrial tax, based on archaic solutions, has aroused opposition from the beginning of its operation, especially in the context of the introduction of the trade tax, which was given the features of a consumption tax, and the maintenance of industrial certificates were given the features of income tax. It should also be remembered that the industrial tax acts themselves were extremely complicated in their content, the legislator in one act tried to regulate as many economic issues as it was possible. Adopted solutions towards the industrial tax allowed the legislator to obtain a permanent influence on the state budget, the size of which, however, varied depending on the period and the social and economic situation, on average constituted 10% of the total revenues of the state budget. Attempts to rationalize the system of collecting industrial tax and break with the principle of the unevenness of this tax, based on the external characteristics of the enterprise, and finally with the mechanical combination of income tax and turnover tax, was made only by the Act of 25 April 1938 on turnover tax. The tax reform was the result of changes in the tax system long awaited by entrepreneurs, mainly in the area of ??industrial tax. Unfortunately, due of the start of war, the regulations did not enter into force.

We build an open-economy dynamic stochastic general equilibrium (DSGE) model that allows us to: (i) derive a time series for labor informality in Brazil spanning the period 2004–2018, whose evolution is consistent with the behavior of the main series provided by Pesquisa Nacional por Amostra de Domicílios (PNAD); (ii) run dynamic simulations showing that, in the presence of a large informal labor market (around 50% of the total labor force), expenditure-cutting measures lead, at worst, to mild short-run recessions in the formal sector and are likely to foster public debt sustainability. Likewise, adjustments through some kinds of distortionary taxation, mainly the corporate tax, and to a lesser extent, the consumption tax, also seem to improve both public debt dynamics and fiscal collection without a significant cost in terms of output. Thus, in countries with large informal economies experiencing fiscal woes, expenditure-based consolidations, as well as some sorts of tax-based adjustments, should be relied upon.

This article compares and contrasts exogenous (observed) and optimal fiscal policy in an economy with Epstein–Zin (1989, 1991) preferences, with consumption tax, and with a common income tax, using a dynamic general-equilibrium model, calibrated for Bulgarian data (1999–2016). The focus is on the relative importance of consumption versus income taxation, as well as on the provision of utility-enhancing public services. The main findings are: (i) The optimal steady-state income tax rate is zero. (ii) The benevolent Ramsey planner sets optimally the utility-enhancing public services, which are now 25% higher. (iii) The optimal steady-state consumption tax is approximately 50% higher.

This study examines two tax policies for achieving fiscal sustainability in Japan: (i) an increase in consumption tax and (ii) consumption tax hike combined with inflation. To evaluate these policies from both fiscal and welfare perspectives, I develop a multi-period overlapping generations model with money. The results reveal that, compared to the first policy, the second policy can substantially delay the timing of and curb the increase in consumption tax through seigniorage revenue. This suggests seigniorage could be a useful tool for the Japanese government in resolving its fiscal problems. In addition, in an aging Japan, the second policy can enhance future generations’ utility. Because inflation reduces money holdings and utility of the elderly, policies that cause inflation in the present but reduce it in the future improve the utility of future generations. From a social welfare viewpoint, such policies are desirable in a government that has foresight.

Published online: 1 January 2022 Recent research claims that the link between partisanship and policy is weak and that left-wing governments tax the poor surprisingly heavily. In this article, I argue that leftwing taxation depends on the institutional context, not constraints from unions or overall spending. Using novel data, I demonstrate that the left tax more regressively in countries using proportional electoral systems, and more progressively in majoritarian countries. The political mechanism is evaluated in a comparison of Swedish and British tax policy after WWII. Uncertainty over future influence made the left in Britain wary of consumption tax, while the left in Sweden combined consumption tax with expanded social programs. Political risk shaped the strategies of key actors and helps explain the divergence in tax policy during this period.

This is a post-print version of an article published in Environmental and Resource Economics, made available in accordance with the copyright policy of the journal publisher. No commercial re-distribution or re-use is allowed. This version may contain minor differences from the journal’s pdf-version. Unilateral actions to reduce CO2 emissions could lead to carbon leakage such as relocation of emission-intensive and trade-exposed industries (EITE). To mitigate such leakage, countries often supplement an emissions trading system (ETS) with free allocation of allowances to exposed industries, e.g. in the form of output-based allocation (OBA). This paper examines the welfare effects of supplementing OBA with a consumption tax on EITE goods. In particular, we investigate the case when only a subset of countries involved in a joint ETS introduces such a tax. The analytical results suggest that the consumption tax would have unambiguously global welfare improving effects, and have welfare improving effects for the tax introducing country as well unless there are strong unfavorable terms-of-trade effects. Numerical simulations in the context of the EU ETS support the analytical findings, including that the consumption tax is welfare improving for the single country that implements the tax.

This research examines the effect of the provision of taxpayer services on filing and payment compliance for the corporate income tax (CIT) and general consumption tax (GCT) for large taxpayers in Jamaica. We focus on taxpayer’s decision to file and pay taxes conditional on reporting positive tax liabilities. The empirical strategy adopts a regression discontinuity design that exploits an exogenous jump in the intensity of taxpayer service delivery that occurs at an arbitrary gross receipts threshold. The results indicate null effects for the CIT where enforcement is relatively weak but positive filing and payment compliance effects for the GCT where enforcement is stronger. This is suggestive of a complementarity between the enforcement strength of the tax regime and service delivery.

We develop a model of a small open economy, where pollution per unit of consumption between domestically produced and imported quantities of the same good differs. We show that the first-best policy combination calls for consumption taxes on all polluting goods, and Border Tax Adjustment (BTA) measures, i.e., tariffs or import subsidies. We identify conditions under which well known tariff-tax reform policies for developing economies, such as a consumer-price-neutral piecemeal reform of a trade and a consumption tax, and a consumer-price-neutral reform of all trade and consumption taxes improve welfare. We also evaluate whether a consumer-price-neutral reform of a tariff and a consumption tax is superior to a reform of a tariff alone.

This chapter investigates whether the replication of inequality is, other things being equal, morally objectionable in ways not applicable to inequality that remains confined to a single generation or “birth cohort.” The focus is both theoretical and practical. The chapter considers the philosophical foundations that might lie behind an objection to dynastic inequality, negotiating the diversity of egalitarian views supporting this position and the complexity around the causal mechanisms at work in cases where inequality has a dynastic tendency. It then discusses the policy reforms that might target inequalities that replicate old distributive trends while leaving newly produced trends more intact, with a focus on tax policy. Current tax rules in most developed economies do not make a distinction between new and old influences on the material distribution. Accordingly, it is likely that the tax reforms implied could be quite extensive.

Do consumption and income tax changes affect the economy differently? We answer this question by estimating structural VARs, where we proxy the latent tax shocks with a newly constructed narrative account of income and consumption tax liability changes in the United Kingdom. We find that income tax shocks have large short run effects on GDP, private consumption and investment. The implied income tax present-value multiplier is around 2.7. The effects of consumption tax cuts are modest and not statistically different from zero on GDP and investment and only marginally expansionary on private consumption. These results indicate that i) it is crucial to distinguish between direct and indirect taxation when studying the transmission mechanism of fiscal policy, and ii) consistent with conventional public finance theories, consumption taxes are less distortive than income taxes.

This chapter is devoted to the changes in tax systems across the world. Its aim is to outline the most important developments over the past decades and to identify the driving forces of these developments. The chapter is focused mainly on advanced economies, but some features of emerging and developing economies are also taken in consideration. Modern tax systems are increasingly complex as a result of the compromises between the conflicting objectives of social equity, market efficiency and fiscal consolidation. Therefore, the reforms in recent years have been based on a combination of consumption tax increases and reduction of the tax burden on low-income labour and capital. It is argued in the chapter that the main driving forces of the changes in tax systems have been the necessity to boost economic growth, globalisation, the digital economy, population ageing and euro area membership. The chapter is structured as follows: the first part presents the theoretical background of taxation with a focus on equality as opposed to efficiency; the second part briefly outlines the main trends in tax policy in the second half of the 20th century; the third part analyses the developments in tax systems after the beginning of the global crisis of 2008; and the fourth part dwells on the main determinants of tax reforms.

A supplemental expenditure tax (SET) could be imposed at progressive rates in addition to the income tax, and income tax rates lowered correspondingly. The SET is a progressive cash flow consumption tax originally proposed by Nicholas Kaldor in 1955. Its enactment would facilitate income tax reform and simplification--for example, by taxing capital gains at the same rates as ordinary income--and would enable the alternative minimum tax to be repealed. It could be designed so as to facilitate compliance with little additional information required beyond what already has to be gathered for income tax purposes.

Taxation is one of the fundamental topics in property right theory, but it is rather neglected one until quite recently. Today there are fervent arguments advanced in philosophical academia on what kind of, in any, taxation is justifiable, largely owing to Liam Murphy and Thomas Nagel’s The Myth of Ownership. In this controversial book, they claims that there are no such things as a morally legitimate right to pretax property or natural property rights and that taxation never infringes upon property rights because they are only institutionally created by governmental decree. Murphy and Nagel’s main target is Richard Epstein’s opposite libertarian or classical liberal view on tax. Epstein likens taxation to public expropriation or eminent domain and argues for proportionate income tax.Here, after concurring with Epstein’s view on private property with some important qualifications, I critically examine Murphy and Nagel’s statist property theory and claim that their overall egalitarianism is not argued for but merely presupposed. I conclude that estate tax is more justifiable kind of tax from the natural rights libertarian perspective than both income tax and consumption tax, which are the most common form of taxation today. I also claim this conclusion is consistent with the natural reading of the Japanese Constitution.JEL Codes: E62, G28, H24

Raising employment, in particular employment among older individuals and low educated individuals, stands high on the agenda of policy makers in many OECD countries. Increased sensitivity in recent years to rising inequality has made the challenge only larger. In this paper we evaluate alternative fiscal policy scenarios to face this challenge. We construct and use an overlapping generations model for an open economy where individuals differ not only by age, but also by innate ability and human capital. The model allows us to study effects on aggregate employment, per capita income and welfare, as well as effects for specific age and ability groups. We show that well-considered fiscal policy changes can significantly improve macroeconomic productive efficiency, without increasing intergenerational or intragenerational welfare inequality. Our results strongly prefer a reduction in the labor tax rate on older workers and on all low-wage earners, financed by an overall reduction in non-employment benefits. An alternative financing option is to raise the consumption tax rate. These results are to be seen as long-run effects for economies at potential output.

Unconventional monetary easing conducted by the Bank of Japan (BOJ) since 2013 has contributed to the yen’s depreciation, higher stock prices, and higher corporate profits. Meanwhile, the impacts on aggregate demand and inflation have not been as strong as the BOJ expected while the adverse impact on financial institutions and deep distortion in the financial and capital markets have become prevalent. Therefore, the BOJ will eventually need to make it more sustainable before underlying inflation approaches 2%. Leaving room for additional monetary accommodation in the event of severe recession is also essential. Keeping the possible phasing out of the program in mind, the BOJ explicitly expanded the target range to ± 0.2% in July 2018, thereby effectively enabling to raise the yields of 10 years and longer and steepening the yield curve. At the same time, the BOJ introduced flexibility on exchange-traded fund (ETF) purchases that would enable “stealth tapering” or cutting the amount of annual purchase amount quietly without declaring it openly—as in the case of Japanese Government Bond (JGB) purchases. The BOJ should interpret the 2% price stability target flexibly—such as the incorporation of the 1% upper and lower range (± 1%) to the 2% target—to complete tapering of both JGBs and ETFs, as well as ultimately eliminating the 10-year yield target. Since the Japanese economy is likely to face an economic slowdown after the 2019 consumption tax hike and the 2020 Tokyo Olympic Games, it will be much longer before the BOJ can take decisive steps to normalize monetary policy by raising the short-term policy rates like the Federal Reserve.