Simulating the Dynamic Macroeconomic and Microeconomic Effects of the FairTax1

Sabine Jokisch () and Laurence Kotlikoff
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Sabine Jokisch: Centre for European Economic Research

No WP2007-026, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: America's aging coupled with high and growing old age health and pension benefits augers for much higher payroll taxes, with damaging effects on the U.S. economy. This prognosis is supported by our analysis of a detailed dynamic life-cycle general equilibrium model. The FairTax, which proposes to replace the federal payroll, personal income, corporate income, and estate tax with a progressive consumption tax, offers a potential alternative to this dismal economic future. According to our simulation model, these policy changes would lead to major improvements in the U.S. capital stock, long-run real wages and the wellbeing of the majority of Americans.

Pages: 36pages
Date: 2007-04
New Economics Papers: this item is included in nep-hea
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