The Role of Tax-Deductible Saving in the Transition from a Progressive Income Tax to a Progressive Consumption Tax

Michael J Daly, Gary J Lastman and Fadle Naquib

Public Finance = Finances publiques, 1988, vol. 43, issue 3, 349-72

Abstract: This paper examines the steady state and transition effects of converting from a graduated income tax to a graduated consumption tax. The authors' simulation results suggest that considerable dynamic efficiency gains could be achieved by switching to a graduated consumption tax, where all saving is tax deductible. An alternative tax system, permitting both tax-deductible and non-tax-deductible saving, is also examined. It is shown that not only is such a tax system a feasible way of implementing a graduated consumption tax, but also an alternative tax without any limits on tax-deductible saving could be more efficient than even a graduated consumption tax in a steady state.

Date: 1988
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Persistent link: https://EconPapers.repec.org/RePEc:pfi:pubfin:v:43:y:1988:i:3:p:349-72

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