The Impact of Converting to a Consumption Tax When Saving Propensities Vary: An Empirical Analysis

Author: Lewis K.A.   Seidman L.S.  

Publisher: Springer Publishing Company

ISSN: 0927-5940

Source: International Tax and Public Finance, Vol.5, Iss.4, 1998-01, pp. : 499-503

Disclaimer: Any content in publications that violate the sovereignty, the constitution or regulations of the PRC is not accepted or approved by CNPIEC.

Previous Menu Next

Abstract

It has been recognized that conversion of an income tax to a consumption tax can increase aggregate saving even if each household maintains a constant propensity to save. The reason is heterogeneity: the variation in the propensity to save among households. How much of an increase in saving is an empirical question. Using the best available (but not wholly adequate) U.S. data, we estimate that the increase may be as much as 10\% of saving. New data stratified by age would be necessary to obtain a more reliable estimate.