Proceedings of the New York State Economics Association


Welfare Effect of Consumption Taxes

Qian Li

vol. 5, October 2012, p. 117-128


Tax reform is a recurrent topic, but most of the prevailing proposals are fail to promote either efficiency or equity. In this paper, we consider an alternative reform, a consumption tax reform. The results show that aggregate capital, labor and consumption are improved by replacing a labor income tax with a consumption tax. Moreover, a progressive consumption tax alone can achieve a significant welfare gain, and the welfare gap between the rich and the poor is reduced.


suggested citation:

Qian Li. "Welfare Effect of Consumption Taxes." Proceedings of the New York State Economics Association. vol. 5, October 2012, p. 117-128

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