The economic effects of the fair tax: analysis of results of a dynamic CGE model of the US economy

Keshab Bhattarai, Jonathan Haughton and David G. Tuerck
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David G. Tuerck: Department of Economics and Beacon Hill Institute at Suffolk University

International Economics and Economic Policy, 2016, vol. 13, issue 3, No 8, 466 pages

Abstract: Abstract By replacing the current income tax with a national sales tax, the FairTax proposal would end the double taxation of saving inherent in the existing tax code and, by doing so, raise output, employment, investment and capital stock relative to the benchmark economy. While these positive effects would be felt almost immediately, the FairTax is very much an investment in the future. Its full benefits would be realized only after the economy achieved a new “steady state,” some 20–25 years into implementation. Only by that point, will the effects on growth have been fully absorbed into the economy and the wellbeing of most households across most income groups improved. The policy choice, then, is between the status quo, and a new policy that would inflict some short-run pain as the price of a permanently expanded economy.

Keywords: Dynamic CGE; Tax reform; Growth; Distribution; US economy (search for similar items in EconPapers)
JEL-codes: C68 D63 E24 O15 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10368-016-0352-4

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