Identical Twins? Destination-Based Cash-Flow Taxes Versus Consumption Taxes with Payroll Subsidies

Benjamin Carton, Emilio Fernández Corugedo and Benjamin Hunt

No 2017/276, IMF Working Papers from International Monetary Fund

Abstract: The Global Integrated Monetary and Fiscal model (GIMF) is a multi-region, forward-looking, DSGE model developed by the Economic Modeling Division of the IMF for policy analysis and international economic research. This paper uses GIMF to illustrate when a destination-based cash-flow tax is equivalent to a combination of a consumption tax and a labor subsidy, as the latter combination have been advocated as proxies for the implementation of destination-based cash-flow taxes. The paper documents the conditions under which both types of taxes are identical and how the equivalence in terms of the real economy and tax revenue responses can be broken, namely after the introduction of finitely lived consumers that value government debt as net wealth (real economy) and the introduction of untaxed government expenditure (tax revenue).

Keywords: WP; consumption tax; real interest rate; cash flow; tax revenue; tax policy; business taxation; financial accelerator; dynamic stochastic general equilibrium models; macroeconomic interdependence; government debt; distortionary tax; lump-sum tax; production tax; tax instrument; tax equivalence; component of the cl; lump sum tax; lumpsum tax; real value; DBCFT tax; consumption goods; Consumption taxes; Value-added tax; Personal income tax; Global (search for similar items in EconPapers)
Pages: 37
Date: 2017-12-14
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Citations: View citations in EconPapers (1)

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