The Effects of a Consumption Tax on Effective Demand under Stagnation

Daisuke Matsuzaki

The Japanese Economic Review, 2003, vol. 54, issue 1, 101-118

Abstract: This paper investigates the effects of a consumption tax on effective demand under stagnation. The existing work shows that a consumption tax does not influence effective demand in the case of a homogeneous household under stagnation. In this paper there are two types of household. One is the richer household, whose level of total assets is relatively high. The other is the poorer household, which owns fewer total assets. In a lump‐sum transfer, when the ratio of the poorer household to the total population is large (small), imposing a consumption tax decreases (increases) effective demand.

Date: 2003
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