Optimal Lifetime Consumption Paths under Equal Yield Income and Consumption Taxes

Karl W Roskamp

Public Finance = Finances publiques, 1987, vol. 42, issue 1, 32-41

Abstract: Excess burden of an equal-yield, flat-rate tax is studied with the aid of a dynamic model. An individual seeks a consumption rate which maximizes the discounted utility stream over a finite period of known length. With supply of labor but not of savings fixed, government extracts a given amount of revenue through an income or a consumption tax. Income taxation induces early consumption, taxation of consumption early asset accumulation. The latter is higher under a consumption tax. The intertemporal excess burden is lower with a consumption tax. This finding was confirmed in two special cases.

Date: 1987
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Persistent link: https://EconPapers.repec.org/RePEc:pfi:pubfin:v:42:y:1987:i:1:p:32-41

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