Search

Biometric identifiers embedded in national identity cards puts a formerly impossible goal of consumption taxation within the grasp of policymakers for the first time. Never before has it been possible to design a broad-based, single rate consumption tax that is truly progressive. No consumption tax has ever had all three of the critical attributes of a progressive consumption tax: a broad base, a single rate, and measured relief for those in greatest need. Although economists have urged that a broad base and a single rate be pursued over progressivity, most consumption taxes instead seek progressivity at the expense of both base and rate considerations. The reason is entirely political. The essential problem (under the current system) is that when tax relief is granted it is universal not surgical. Thus, under most consumption taxes rich and poor alike enjoy an exemption for the purchase of food for home consumption. However, with each universal exemption - tax practice compromises tax theory without achieving progressivity. Technology offers policymakers a surgical option. Three technology-intensive developments (smart national IDs; fully digital consumption tax regimes; certified tax calculation software) make a new breed of consumption tax possible. It is a simple matter of embedding exemption certificates in smart IDs equipped with biometric identifiers, and then processing sales transactions through certified tax calculation software. Not only is the technology to do this is available today but all critical pieces have been part of successful pilot projects. The time for the progressive consumption tax has arrived.

GST in India was implemented from 1st July 2017. It is considered to be major tax reform in India’s Indirect tax structure. GST is a destination based consumption tax that is levied on every value addition. The greatest advantage of implementing GST, it facilitates free movement of goods or services across state frontiers making whole of India as one unified market. There were several reasons which delayed the implementation of GST in India. One of the main reasons was loss of revenue to the states after GST Implementation because many state taxes were subsumed in GST. Although, Centre has introduced Compensation cess for the states to cover the loss of revenue and on the recommendation of 14th Finance commission, 42% of CGST collection will be distributed to state government. The purpose of this paper is to find out the indirect tax collections of states in pre & post GST era. The states indirect tax revenue is collected from the official website of the government. (https://www.gst.gov.in/). The study is descriptive in nature and the analysis of data is done by using the Test of Equality (Paired T test) and ANOVA. Since none of the existing studies have shown such an impact assessment, our study is unique and attempts to fill the gap. Our results have shown that states collections of tax have increased after imposition of GST and there is even more variability in tax collections among states.

Fiscal devaluation, meaning a shift from payroll to indirect taxes, can be beneficial for a small open economy such as the Czech Republic. Using a structural fiscal DSGE model, I show that fiscal devaluation can boost real GDP growth by 0.5 percentage points in the first year, when a budget-neutral tax shift of the magnitude of 1% of GDP occurs from direct taxes to consumption tax. I also calculate fiscal multipliers for several revenue and expenditure categories of the government budget, the largest of which (after the first year) are government consumption (0.6), government investment (0.5), and social security contributions paid by employers (0.4). These results corroborate the hypothesis that the government can easily boost the economy by adjusting fiscal instruments appropriately.

Do consumption and income tax changes affect the economy differently? We answer this question by estimating structural VARs, where we proxy the latent tax shocks with a newly constructed narrative account of income and consumption tax liability changes in the United Kingdom. We find that income tax shocks have large short run effects on GDP, private consumption and investment. The implied income tax present-value multiplier is around 2.7. The effects of consumption tax cuts are modest and not statistically different from zero on GDP and investment and only marginally expansionary on private consumption. These results indicate that i) it is crucial to distinguish between direct and indirect taxation when studying the transmission mechanism of fiscal policy, and ii) consistent with conventional public finance theories, consumption taxes are less distortive than income taxes.

Optimal tax models, starting from Ramsey (1927), are often studied using a single government. However, there are several countries which are federations and in that multiple levels of government have fiscal authority, which masks the heterogeneity across states. In this paper we study a federation with two states and a federal government. We first find that the optimal tax design indicates tax smoothing across the states and consumption smoothing across states and time. Moreover, optimal consumption is found to be independent of the tax rates. We also find that all governments cannot have zero borrowing simultaneously. Then we characterize two equilibria, one where both federal and state governments impose taxes and two, where only the federal government imposes tax. We find that in the first equilibrium, states potentially impose different tax rates, but consumption across states are the same. In an equilibrium with a single federal tax, consumption is smooth across time, but may not be equal across states. However, aggregate consumption in the economy is greater in the second equilibrium. India has adopted a nationwide GST system, moving away from multiple taxation. So, we then calibrate the model to Indian data and find the revenue neutral tax rates. We find that the highest revenue neutral tax rate is 20.1% and the median rate is 11.4%. Using the calibrated indirect tax rates in a regression analysis, we find that tax rates at the state level is negatively related to the growth rate of the state. So, after the implementation of GST in India, some states may see a higher level of consumption tax rate in the state and hence, a fall in growth rate.

Value Added Tax is an indirect tax which is also termed as Goods and Service Tax. Both these terms are used in the same meaning in different parts of the world. VAT is followed almost in many countries and during this pandemic situation many countries have relaxed VAT for the benefit of the public. This study mainly focuses on the frameworks followed by various nations regarding VAT. It concentrates on the origin, growth and development of VAT, various tax model frameworks followed in nearly 147 different countries all around and the various measures adopted by countries towards VAT during this era of COVID-19 pandemic.

This paper examines the impact of democratisation on tax structure in an agrarian economy where goods can be produced at home for self-consumption. We first develop a model of optimal taxation with heterogeneous agents where the good produced in the market is subject to a consumption tax, whereas the homogeneous good produced at home is burdened by a direct tax (such as land tithes). Contrary to conventional theory, our model suggests that extension of the voting franchise to poorer segments of the population exerts a negative impact on the share of direct to indirect taxes. Using unique national and regional tax data for the Kingdom of Greece - a typical agrarian economy where universal male suffrage was established in 1864 - we provide consistent empirical evidence. Greek governments adjusted tax policy in order to meet the preferences of the newly enfranchised electorate that constituted mostly peasants and farmers. This group was harmed substantially by direct taxes on land but was able to avoid indirect taxes through self-consumption. We also analyse a sample of 12 European countries over the same period and provide evidence for a similar change in the tax structure when the agricultural sector dominates the economy.

In a globalized era, in order to fight for capital and location of company construction, a number of countries have reduced direct taxes on companies one by one, including business income tax, capital tax, social security tax afforded by company, etc. Due to the inflexibility of financial expenditure, it causes financial crisis in developed countries. Aimed at compensating the shortage resulted from reduction of direct tax, countries have been forced to expand VAT and consumption tax, since these taxes have a lower cost and a better security effect on financial income. As a consequence, the proportion of indirect taxes rises again, which reverts the former taxation development trend. In the future, the proportion of indirect taxes in China will decrease, but we shouldn’t follow the American taxation structure as an example. In conclusion, indirect taxes, mainly represented by VAT and consumption tax, will still play an important role in China.

Colombia has reduced extreme poverty in the past 16 years by almost half, moderate poverty by 22 percentage points, and made more than four million Colombians jump the threshold of multidimensional poverty. However, it remains one of the most unequal countries in the region, after Brazil and Panama. Fiscal policy is one of the instruments that allow governments to speed up the decline in inequality levels and reduce poverty. This study presents an exhaustive and comprehensive analysis of the distributional impacts of taxes and expenditures in Colombia in 2017. It makes a methodological comparison with the Commitment to Equity, which was previously implemented, and includes multiple improvements in the methodology. The results suggest that the combined effect of taxes and social spending in Colombia contributes to poverty reduction between 0.3 and 2.6 percentage points for US$5.5 and US$3.2 per day per person respectively, while inequality is reduced by almost one Gini point. Taxes and direct transfers, as well as indirect transfers, are progressive and pro-poor, while indirect taxes are regressive and contribute to an increase in inequality. Finally, transfers in-kind for education and health services are progressive and contribute to the reduction of inequality.

China’s coal resource tax reform, introducing an ad valorem tax to replace previous volume-based tax from December 2014, marked a new stage of the resource pricing mechanism reform. In particular, coal, as a pollution-intensive energy, is the main source of energy for China. With this in mind, it is the time to ask what the impacts of this reform would be on Chinese economy. A computable general equilibrium (CGE) model is applied to explore the impact of a 5% ad valorem coal resource tax on Chinese economy under four scenarios involving distinguished electricity pricing mechanisms and tax revenue recycling scheme by deducting consumption tax. Simulation results show that levying ad valorem tax will reduce the output of energy-intensive industries with minor negative impact on economy. A consumption tax deduction can offset the negative impact on real GDP and help the economy to restructure. The concern that reform will push up inflation is unnecessary, even under the market price mechanism of electricity. In terms of winners, export-oriented industries benefit when no tax revenue recycling, while industries producing private consumption goods benefit when ad valorem coal resource tax revenue is used to deduct consumption tax.

This paper explores the effects of fiscal policy in an economy based on indirect taxes, and one that is constrained to taxing all (labor and capital) income at the same rate. The focus of the paper is on the relative importance of consumption vs. income taxation, as well as on the provision of utility-enhancing public services. To this end, a Real-Business-Cycle model, calibrated to Bulgarian data (1999–2014), was set up with a richer public finance side. Bulgarian economy was chosen as a case study due to its major dependence on consumption taxation as a source of tax revenue. To illustrate the effects of fiscal policy, two regimes were compared and contrasted to one another - exogenous vs. optimal (Ramsey) policy case. The main findings from the computational experiments performed are: (i) The optimal steady-state (capital and labor income) tax rate is zero, as it is the most distortionary tax to use; (ii) The optimal steady-state consumption tax (the only source of revenue) has to almost double to finance the optimally-set level of government purchases.

High tax rates that distort incentives and create large deadweight losses have been reduced, but there is still much more to be done to improve the tax system. It is useful to distinguish between tax rules that represent tax expenditures relative to a pure income tax from rules that represent tax expenditures relative to a consumption tax. I think it is important to focus on tax expenditures relative to a consumption tax base. It is possible that if there were no estate tax, the present value of the taxes paid by future heirs would exceed the revenue lost by abolishing the estate tax. On the corporate side, a shift to a territorial system of taxation would have very substantial favorable effects, while pass-through entities have a very weak case for a significantly lower tax rate. The net effect of such tax changes would be an increase in the budget deficit, though that increase is likely to be only temporary due to legislative rules. I am optimistic that there will be tax reforms enacted in the next twelve months holding great promise for improving our tax system and our economy.

The ongoing tax reform in Japan, particularly a corporate income tax cut financed by an increase in consumption tax, is expected to bring positive effects on investment and output. However, the overall effects on government fiscal balance and welfare can be ambiguous, depending on the dynamic responses of macroeconomic variables to changes in tax rates. This paper aims to provide quantitative forecasts of Japanese tax reform on welfare and fiscal balance using a small open two-sector dynamic general equilibrium model calibrated to the Japanese economy. The simulation results show that under conditions of unrestricted international borrowing and no consumption habit, a corporate income tax cut of 5% financed by an increase in consumption tax improves welfare by 0.53%. However, the positive effects of corporate income tax cuts decrease when international borrowing becomes limited or consumers show habit formation. In addition, we show that a corporate income tax cut in the tradable sector generates better welfare and fiscal consequences than a tax cut in the nontradable sector.

It is possible to design an import border tax adjustment that would pose a reduced risk of violating World Trade Organization (WTO) law, and, in the event a violation is found, an increased likelihood of satisfying the requirements for an exception. The lowest risk of successful WTO legal challenge would be presented by a border tax adjustment (BTA) in relation to a national product-based tax that does not vary by reference to carbon intensity of production, but is set at a fixed rate for specified categories of products. A national carbon consumption tax that varies by reference to the carbon intensity of production could achieve many of the same goals as the combination of a national carbon tax on production combined with an import BTA. If the consumption tax structure is not used, then an export border tax adjustment could address the foreign market competitiveness issue, but might significantly reduce the likelihood of the related import BTA satisfying the requirements for a WTO law exception. Alternatively, it is possible to provide domestic subsidies to high-carbon industries.

This article indicates how tax legislations, both in direct and indirect fields, of ASEAN countries should be harmonized. With respect to direct taxation, the issue of direct tax rates harmonization - personal income tax and corporate income tax - will firstly be discussed. Further, I will look into how the personal income tax treatment on a resident exercising the free movement of skilled labour should be. In addition, how to enhance the network of tax treaties between ASEAN Member States and withholding tax levied on cross-border transaction will also be described. As regards indirect taxation, I will consider to what extent such the consumption tax systems as VAT and GST in each ASEAN countries could be in accordance with each other. Finally, what challenges over tax harmonization in ASEAN can be will be noted. The majority of the discussions above will be based upon the tax harmonization and coordination already conducted within the EU.

A comprehensive multistage Value Added Tax (VAT) system, viz., Goods and Services Tax (GST), is introduced in India since 1 July 2017. GST encompasses various taxes from Union and State indirect tax bases and it is a dual VAT system with concurrent taxation power to Union and State governments. It was envisaged that removal cascading of taxes and enshrining destination based consumption tax system under GST will encourage investment and improve ease-of-doing business in India. Though it is not right time to comment on success or failure of Indian GST system unless the tax system stabilizes, so far revenue mobilization from GST is not encouraging. The shortfall in GST collection has been acknowledged in the ‘Medium Term Fiscal Policy cum Fiscal Policy Strategy Statement’ of the Union Budget 2019-20. The genesis of revenue shortfall may be design and structural in nature and/or compliance and tax administration related. However, the uncertainty surrounding GST revenue collection is an issue which needs an in-depth assessment for fiscal management of Union and State governments. The impact of revenue uncertainty will not be restricted to Union finances alone; it will spill over to state finances through inter-governmental fiscal transfers. Therefore, depending on seriousness of the uncertainties associated with GST revenue collection, devising an inter-governmental fiscal transfer framework may be a challenging task for the Fifteenth Finance Commission. Given the information available in the public domain, this paper attempts to explore possible causes of revenue shortfall and assess possible impacts of revenue shortfall on Union and State finances.

This paper extends benchmark OR model with consumption tax reform, based on “New open economy macroeconomics” framework, and analyzes responses of consumption tax reduction to output, consumption, exchange rate. Our analytical results show that a unilateral cut in consumption tax rate for domestic country results in a domestic depreciation, generates a domestic boom in which both output and consumption increase in the short-run and long-run. We focus on the dynamic Laffer effects to happen by numerical solutions from our derived analytical solutions, in the sense that it has positive budgetary consequences for the country which implements it. So both government and residents can get benefits from a consumption tax cut.

Although developing countries face high levels of income inequality, they rely more on consumption taxes, which tend to be linear and are less effective for redistribution than a non-linear income tax. One explanation for this pattern is that the consumption taxes are generally more enforceable in these economies. This paper studies the optimal combination of a linear consumption tax with a non-linear income tax for redistributive purposes. In our model, households might not comply with the income tax code by reporting income levels that differ from their true income. However, the consumption tax is fully enforceable. We derive a formula for the optimal income tax schedule as a function of the consumption tax rate, the recoverable elasticities, and the moments of the taxable income distribution. Our equation differs from those of Mirrlees (1971) and Saez (2001) because households face a consumption tax and they respond to income tax not only through labor supply but also through mis-reporting their incomes. Both aspects are empirically relevant to our calibration of the optimal top rate in the Russian economy. We then characterize the optimal mix between a linear consumption tax rate and a non-linear income tax schedule. Finally, we find that the optimal consumption tax rate is non-increasing in the redistributive motives of the social planner.

We examine dynamic revenue effects of a permanent tax cut on labor and capital income using a small open two-sector dynamic general equilibrium model. We use a dynamic scoring technique to calculate long-run as well as transitional effects on fiscal revenue when a tax cut is financed by either a lump-sum tax or consumption tax. We show that the revenue loss from an income tax cut becomes substantially smaller when agents can use international financial markets compared to the case of the closed economy. Responses of tradable and nontradable sectors to the capital income tax cut display a stark contrast in both long-run equilibrium and transitional dynamics due to different factor intensities. Capital income tax cut in the tradable sector is the most efficient policy instrument in terms of minimizing fiscal revenue loss. These simulation results suggest that fiscal sustainability issue when implementing a tax cut could be overstated.

Does reducing the corporate income tax accompanied by an increase in the consumption tax to meet the government's budget constraint improve welfare? To respond, we examine the welfare-maximizing corporate income tax and consumption tax rates in an R&D-based growth model under the constraint that the government's budget is balanced at each point of time. Further, we consider how welfare-maximizing tax rates change as patent protection becomes stronger, as seen in many countries. The results show that as patent protection becomes stronger, the corporate income tax rate should be higher and the consumption tax rate should be lower. This implies that under stronger patent protection, recovering production at the expense of innovation by raising corporate income tax and reducing consumption tax improves welfare.

The European Union countries tend to strongly prefer indirect taxes. This tendency results in the increase of the value added tax rate. In the economic reality, the legal burden of the consumption tax is distorted and it consequently leads to distribution and shift to other entities participating in market transactions. The aim of the paper is twofold. First, to determine the primary value of the relative distribution of the burden on the seller and the buyer. Second, to adjust it for those values which suggest that the increase in the tax burden may result in a reduction in sales prices. Furthermore, the paper aims to follow the conservative approach for determining the minimum values of the shift of the tax burden onto the consumer. The strict determination of the limits of burden distribution is presented within the limits of the actual tax burden. Finally, the partial shift of the increased tax burden onto consumers in the minimum amount of 1/3 is identified together with a significant negative correlation between the size of change of the tax burden and the rate of shift of the tax burden.

This article models the elasticity of consumption taxation faced with changes in disposable income. Its calculation makes clear the importance of the design of the personal income tax and of the changes caused to the consumption of taxpayers. The modelling is performed for both individual taxpayers and the population as a whole.

It is claimed that tax policy is neither time- nor space-independent due to cross-border tax base mobility, which induces spillovers. Specifically, fiscal shocks in one country are supposed to have an impact on fiscal policies in other countries. Different types of taxes influence economies differently. This paper addresses the question of their impact on government debt. Within a framework of spatial econometric modeling, we evaluate the impact of capital, labor and consumption taxes on public debt in 34 European countries in 2002–2011, and find strong spatial spillovers. We show that a consumption tax and, to a lesser degree, a capital tax significantly affect the sovereign debt, and that the global relations play a leading role (i.e. dominate the local ones) in shaping fiscal policy.

A large literature has compared the efficiency properties of income and consumption tax bases. Its general conclusion is that a consumption base dominates an income base, except to the extent that practical compliance and administrative problems create opportunities for avoidance and evasion under a consumption tax that are absent under an income tax. An apparent corollary is that the same superiority holds in the comparison of an ideal accretion wealth tax and an ideal consumption tax, because an accretion wealth tax seems not to differ in relevant ways from an ideal income tax.This article argues that these conclusions are significantly qualified. A progressive accretion wealth tax can curb negative externalities that remain in place under a consumption or an income tax, and it can do so more effectively than an excise wealth tax; the article accordingly argues for an accretion tax as a supplement to existing federal taxes (or to a consumption tax, if enacted). The article also argues that any practicable consumption tax creates timing distortions absent under an accretion-type tax, whether on income or on wealth, because of the need for progressivity in rates. Policymakers need to consider all of these issues when weighing the relative merits of income, consumption, and wealth taxes.

In the process of economic and social development, serious income gap exists between urban and rural areas in our country, indirect tax—as our main taxes should play income distribution function to narrow the income gap between urban and rural areas. By using the consumption expenditure data of urban residents, the indirect tax burden of urban residents is estimated. The indirect tax burden of rural residents will be estimated by using the indirect tax data and the rural population. Compared with their respective income levels, we can draw the conclusion that the indirect tax is regressive between urban and rural residents. Using Tal index between 1994 and 2013 to measure urban and rural residents income gap, the empirical analysis of commodity tax shows that value added tax has a negative effect on income gap between urban and rural areas; business tax and consumption tax has a positive effect on income gap between urban and rural areas. However, negative effects brought by the VAT tax are greater than the business tax and consumption tax, indirect tax whose main body is VAT is worsening income distribution as a whole. The reform program to replace the business tax with a value-added tax will be expanded so that the proportion of value added tax will further increase. Combined with the empirical results, we put forward the policy which can perfect the indirect tax’s influence on income gap between urban and rural areas.

Our paper sets an endogenous fertility model and examines how tax revenues derived from a consumption tax should be used for social security benefits such as pension and child-care policies. An additional pension financed by a consumption tax can achieve Pareto-improving allocations. Child allowances and an education subsidy decrease the older generation's utility because of tax burdens and the lack of additional benefit. Even if child allowances can raise the share of young people in society and some future generation's utility, that future generation's utility decreases because of a decrease in income growth. However, with certain parametric conditions, an education subsidy can raise every generation's utility, except for that of the older generation, because of the increase in income growth.

Tax reform proposals, such as taxing all business entities in a similar manner under an entity level tax or moving to a cash-flow or valued-added consumption tax, require careful accounting so that...

This study aims to investigate the tax impacts of luxury food products in dual-class from macro perspective using the parallel factor analysis. Along with the rapid economic development of China, the growing purchasing power of Chinese residents has been accelerated. This can be seen particularly in the luxury food products market. In the parallel factor analysis on China new consumption tax, it indicates that the adjusted taxable items of consumption tax could narrow the gap between rich and poor and to promote social equity. The taxation system in China might affect the general public when targeting the heavy taxes on the rich. Changes of rational consumers' choices will result in a loss of tax revenues which will lead to a lack of financial support to the fair income distribution. What is more, the atrophy of the luxury food products market brought by the luxury tax may curb the growth and development of domestic luxury manufacturing industry. Hence, the finding of this study suggests that the government should carefully choose the tax base, tax rates and reasonable tax-price mode combined with the features specifically demonstrated in the Chinese market.

Consumption taxes have an important place in the tax systems of modern states. They provide a large amount of revenue for the state budget. However, they are generous, but they are very regressive. It is a bad characteristic. The regressivity problem of the tax burden implies that the consumption tax is burdensome for the population with lower income. They pay similar tax rate as people with high income. The aim of this paper is to point to the existence of the problem of regressivity in underdeveloped and developed countries. This paper analyses the possibilities of reducing this problem in order to satisfy the principle of fairness in taxation.

Since the cost of social security in Japan is rising due to an aging population and a low birth rate, an enormous quantity of long-term public bonds have been issued in order to cope with the lack of funding for social security programs. As part of its efforts to reform and secure financial resources for social security, the Japanese government implemented its Comprehensive Reform of Social Security and Tax, thus raising the consumption tax.

Based on the background of fiscal budget balance deviation increasing year by year, this paper detects causal relationship between excess revenue and overspend in government finances with the granger causality method, and analyzes the influence of excess revenue to overspend with impulse response function under the VAR model. The result shows that the overrun is caused by excess revenue. To dig deep the structural factors that cause the budget income deviation, from the angle of tax in excess, the paper analyzes contribution to fiscal excess of value-added tax, business tax, personal income tax, enterprise income tax, consumption tax through multiple linear regression models. The results show that Business tax and individual income tax have a significant influence on fiscal budget deviation. The focus of correcting the fiscal budget balance deviation is to control the business tax and individual income tax in excess. The government should comprehensively promote the tax reform on personal income tax and VAT instead of business tax to establish and perfect the system of modern finance.

With gross government debt of 219% of GDP in 2016, Japan’s fiscal situation is in uncharted territory and puts the economy at risk. In addition to raising productivity and growth, Japan needs a more detailed and credible fiscal consolidation path, including specific revenue increases and measures to control spending to restore fiscal sustainability. Spending pressures associated with rapid population ageing make reforms to contain social expenditures a priority. Local governments need to be part of the effort to contain public spending in the context of a shrinking population. Much of the consolidation, though, will have to be on the revenue side, primarily through hikes in the consumption tax rate toward the OECD average and a broadening of the personal income tax base. Fiscal consolidation should be accompanied by measures to promote inclusive growth through the tax and benefit system, in particular by introducing an earned income tax credit to assist the working poor, hiking the tax on capital income and broadening the base of the inheritance tax. This Working Paper relates to the 2017 OECD Economic Survey of Japan (www.oecd.org/eco/surveys/economic-survey-japan.htm)

Germany imposes an energy tax of 0.65€/l on gasoline which is one of the highest tax rates across countries. The effective tax is even higher when accounting for the consumption tax levied on top of the energy tax. Answers to the question whether such a high tax level is justified on efficiency grounds would add precious arguments to policy discussion debating the appropriate level of a car driver׳s tax burden. This paper sheds light on that issue by calculating the optimal gasoline tax in Germany using an optimal tax approach that accounts for gasoline/diesel car substitution and interactions of the gasoline tax with the broader fiscal system. According to the baseline calculation the optimal gasoline tax is 0.96€/l, thus, exceeding the (already high) current tax level by 48%. The corrective tax component exclusively reflecting the externalities associated with car driving contributes 0.64€/l to that optimal level while the positive net effect of the interaction of the gasoline tax with the other distortive taxes in the economy adds another 0.32€/l. Sensitivity analyses reveal that the optimal tax is very unlikely to fall below its current level. Even quite the contrary, the optimal tax rises dramatically (to approximately two times the current rate) when account is taken of the medium/long term EU fuel economy regulation legislation aiming at tightening CO2 emission standards of passenger vehicles. All in all, the present analyses suggest that there is no reasoning on efficiency grounds for adjusting the current gasoline tax downwards given the present practice of mainly levying fuel taxes rather than charging individual car drivers on a distance related basis.

In economically developed countries, family support policies are undertaken by governments to raise fertility. Because of increased dependency ratios in many aging societies, governments must pay ever-increasing pension benefits. Those governments must somehow increase the number of younger people to make the pension system sustainable. This paper presents an examination of whether child allowances can raise fertility or not. This issue has been analyzed in numerous earlier studies, but this paper presents an examination of the means used to finance such a child allowance: income taxes and consumption taxes. The different means of taxation exert substantially different effects on fertility. The following results are presented herein. First, a child allowance financed by an income tax cannot always raise fertility. However, such an allowance financed by a consumption tax can always raise fertility. Second, this paper presents an examination of an optimal tax policy to maximize social welfare. An optimal child allowance and an optimal income transfer from younger people to older people differ according to whether they are financed by an income tax or by a consumption tax.

The effects of a reform in capital and consumption taxes on private welfare and government tax revenue are examined for a small open, capital-importing economy. A trade-off between private welfare and tax revenue is encountered in maximizing social welfare. Nonetheless, lowering capital taxes and raising consumption taxes can increase both private welfare and tax revenue if the initial tax rates are not optimal. In addition, a tax reform by this fashion is a likely response to a rise in the foreign rate of return on capital.

This paper presents a simulation model based on the growth rate, the inflation rate, and the consumption tax rate in the future. Future tax revenues and fiscal expenditures are projected using regression models estimated from past data. The fiscal situation is called unsustainable if the outstanding amount of Japanese government bonds (JGBs) becomes higher than the level of private sector financial assets. We focus on the general account of the central government, which is the source of JGB issues. We find that the higher the economic growth, the more likely it is that the fiscal situation is sustainable. When a larger portion of interest income is reinvested in JGBs, the chance is higher that the fiscal situation is sustainable. Most importantly, raising the consumption tax to 20% guarantees fiscal sustainability in most cases. Our analysis shows that without a consumption tax hike beyond the 10% rate, a fiscal crisis will be almost a certainty, even with a real economic growth rate of 2% despite a shrinking labor force. A reasonably quick hike of the consumption tax, namely a hike by 1% a year, up to 20%, combined with high or moderate economic growth rates, seems to keep the economy out of a fiscal crisis, where a moderate growth rate is defined to be generated by a productivity increase per working-age population of 1.9%, which was the average during the Koizumi years.

This paper studies the effects of alternative tax policies (a consumption tax, seigniorage tax, and tax switch) on economic growth under different methods of government budget adjustment in a monetary endogenous growth model with a labor–leisure choice and a cash-in-advance constraint which is only imposed on consumption. It is found that the validity of both the Mundell–Tobin effect and the consumption tax neutrality crucially depends on the adjustment methods used to maintain the balanced government budget. In addition, we find that a switch from a consumption tax to a seigniorage tax unambiguously enhances economic growth. This result stands in sharp contrast to that of Ho et al. (J Money Credit Bank 39:105–131, 2007), in that it does confirm the validity of the qualitative equivalence between the money-in-the-utility-function and cash-in-advance approaches in terms of the effect of tax shifting away from a consumption tax towards a seigniorage tax.

Following years of study the Gulf Cooperation Council (GCC) appears ready to adopt the recommendations of the International Monetary Fund (IMF) and put in place a tax system that will stabilize revenue. A value added tax (VAT) and corporate income tax (CIT) are considered. A VAT Framework Agreement, that functions like the VAT Directive in the EU, has been agreed. Although new, the GCC VAT is very worthy of attention. From a tax policy perspective, it is making notable improvements to EU VAT design. The GCC VAT is (potentially) the world’s first real-time, blockchain-secured, multi-jurisdictional VAT. This is a remarkable accomplishment, and it indicates that the GCC has learned and applied a number of global VAT and technology lessons. One of the most visible flaws in the EU VAT is its openness to cross-border frauds – both intra-community and extra-community frauds. Missing traders are the problem. This is what the GCC has corrected. The perpetrators of tax fraud are not at all concerned about the specific tax law that they are abusing; they are looking solely at revenue streams, and the probability that they will get caught. As a result, when a fraudster finds a single activity that attacks multiple tax systems, it becomes a favored vector, and we find a nexus of frauds clustered around a unitary fraud operation. The government’s perspective is just the opposite of the fraudster’s. A focus on one kind of tax fraud may well resolve many more kinds of fraud. This appears to be what will happen as the GCC VAT is rolled out after January 1, 2018. The example considered in this paper involves the illicit cigarette trade. By resolving missing trader frauds, the GCC may (unintentionally) make a serious dent in the illicit cigarette trade and the theft of cigarette tax revenues (a manufacturer’s tax), precisely because the operation of the GCC VAT will increase the cigarette fraudster’s probability of detection. A “tax fraud nexus” that could easily be replicated in the GCC (if an unmodified EU-style VAT were to be adopted) can be seen in the Danish chocolate frauds. These frauds were examined in the first program of the three part Danish documentary, How Fraudulent Denmark (Sadan Svindles Danmark). The documentary appeared on DR TV January 12 and 25, and February 1, 2016. The fraud vehicle was candy that was re-sold by traders who purchased expired chocolate from the Mars Denmark Company. The primary fraud, re-packaging and then re-selling expired chocolate was carried out in a manner that attacked two tax regimes – the chocolate tax (a manufacturer’s tax) and the VAT (a consumption tax). This scheme funded organized crime; a different scheme examined in the second program of the documentary funded Islamic terrorists. The GCC seems to be very aware of the missing trader fraud discussed in the documentary. Technology innovations that will suppress it are set out in Article 71 of the GCC Framework Agreement. No other VAT Framework or VAT Directive has such a provision. One of the tax-related side benefits from resolving missing trader fraud in the GCC VAT will likely be the suppression of cigarette smuggling, and the recovery of important revenues from the cigarette tax, which has been raised to a 200% levy. If Denmark had a VAT provision similar to Article 71 it would likely solve the VAT and Chocolate Tax frauds considered in the documentary.

For apparently irreconcilable domestic political reasons, the United States is an outlier amongst economically advanced countries as the only one that does not have a value added tax (VAT), which is the conventional and WTO-sanctioned approach to applying an economically efficient and non-trade-distorting consumption tax. Under a VAT regime, the same tax is applied on imports as on domestic purchases. This means that all goods sold in a country are subject to the same amount of tax regardless of country of origin. At the same time, all VAT paid on intermediate inputs – whether domestically sourced or imported – in producing a good is refunded for goods that are exported, which provides a level playing field for exports with products from other sources since they all face the same sales taxes applicable in the destination country, with no consumption/sales tax burden from their country of origin. The perception that the lack of a VAT has put U.S. trading firms at a disadvantage in international trade has led to attempts to construct an alternative tax that replicates in some sense the trade neutrality of a VAT. Such a “border adjustment tax” (BAT) has been promoted by Speaker of the House, Paul Ryan, and supported by White House Trade Policy Adviser Peter Navarro, amongst others. In this note, we quantify the impacts of such a BAT and demonstrate that it is trade-distorting, and economically damaging to the United States and to its trading partners. The BAT is not a VAT because of the trade-distorting effects at the product level, where substitution elasticities are high. The aggregate effects are negative because the trade disruption at the product level are much more powerful than the impact of export subsidies on the decision to export.

This paper presents, analyses, and further develops the idea of a destination-based cash-flow tax (DBCFT). Its purpose is expositional: to describe the DBCFT, how it might work, what its effects would be and some of the challenges that its implementation would face. The paper starts by introducing the basic mechanics of the DBCFT before evaluating it against five criteria: economic efficiency, robustness to avoidance and evasion, ease of administration, fairness and stability. It does so both for the case of universal adoption by all countries and the more plausible case of unilateral adoption. The paper then looks closely at the application of DBCFT treatment to the financial sector, which is a familiar problem under the VAT but has been little considered under the DBCFT. Finally, the paper sets out some core implementation issues, and how they might be addressed. It also compares the implementation of a DBCFT with the economically equivalent reform option that introduces a broad-based, uniform rate VAT (or achieves the same effect through an existing VAT), and reduces taxes on payroll by the same proportion.

This paper theoretically investigates the role of the tax system in sustaining the public debt. The paper explicitly derives the critical level of the public debt-to-GDP ratio that is compatible with a balanced growth path. If the ratio exceeds this critical level at time 0, then it diverges to + ∞ as time passes. Analyzing a situation where the government marginally increases the consumption tax rate, the paper reveals the extent to which the government can then cut the income tax rate while maintaining the sustainability of public debt. Tax rates that are compatible with the balanced growth are also derived as a function of the initial level of debt-to-GDP ratio.

A primary principle of EU taxation system is represented by the harmonization of taxes which is explicitly stated in the art. 113 TFEU (formerly art. 93 of the Treaty of Maastricht and art. 99 of the Treaty of Rome). In this rule it is defined the aim of the harmonization of the laws of the Member States in function to the turnover tax, the consumption tax and other indirect taxation to the extent that harmonization is necessary to ensure the establishment and functioning of the common market.