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The Economic Effects of Replacing the Property Tax with a Sales or Income Tax:A Computable General Equilibrium Approach

Dagney Faulk, Nalitra Thaiprasert () and Michael Hicks ()

No 201008, Working Papers from Ball State University, Department of Economics

Abstract: With the most recent wave of property tax restructuring in the U.S., policy makers have considered the possibility of replacing the property tax. In this analysis we use data for Indiana and a short-run computable general equilibrium model to examine the effects of replacing the property tax with a sales or income tax. We find that replacing the property tax with a sales or income tax has a relatively small effect on aggregate economic variables. Aggregate output in the state decreases by 2 to 3 percent. Larger effects are apparent when analyzing household groups and industry sectors. Replacing the property tax with a sales or income tax decreases household income by over three percent with the income tax being most regressive. Replacing the property tax has a negative effect on sales revenue for most industry sectors with retail sales and several other sectors experiencing large (over five percent) decreases.

Keywords: property tax; sales tax; income tax; computable general equilibrium models (search for similar items in EconPapers)
JEL-codes: H71 C68 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2010-06, Revised 2010-06
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-ure
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http://econfac.bsu.edu/research/workingpapers/bsuecwp201008faulk.pdf First version, 2010 (application/pdf)

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