General Consumption Tax Research Articles

Changes in the tax mix from income taxation to GST: Revenue and redistribution

This paper examines the conditions under which a partial shift from a multi-step personal income tax structure towards a general consumption tax can be both revenue-neutral and distribution-neutral, in a cross-sectional context. In the absence of a tax-free-threshold, this can be achieved with a broad-based consumption tax, or one in which, at each income level, the proportion of taxed expenditure is independent of total expenditure. Such a change, involving a smaller percentage reduction in the higher marginal tax rates, is also shown to increase labour supply in a simple continuous-hours model.

The Use of Both the Consumption Tax and the Wage Tax in an Incomplete Market

In the standard multi-period model, the general consumption tax and the wage tax are equivalent. When a capital market is incomplete, such that the rate of return from capital is idiosyncratic, the consumption tax, in contrast to the wage tax, can play a role in risk-sharing. However, risk-sharing may disappear if the government applies a linear or non-linear capital income tax, because the source of risk is the return from capital. The present study shows that a consumption tax, when instituted in the presence of a wage tax, increases public welfare when the capital market is incomplete, even if the government applies a non-linear capital income tax for risk-sharing and subsidizes investments.

Taxing Consumption in Jamaica

In Jamaica, as in most countries, consumption taxes in the form of a value-added tax called the general consumption tax (GCT) and several excise taxes collectively known as the special consumption tax (SCT) are critically important revenue sources, accounting for 37.4 percent of total revenues in fiscal year 2003-2004 (27.7 percent for GCT alone) and an estimated 11.2 percent of GDP (8.3 percent for GCT alone). This article describes in some detail the present structure and administration of the GCT and SCT and then evaluates the performance of these taxes from several angles—their revenue effects, their distributional effects and their relation to the shadow economy, their administrative aspects, and their relation to various international considerations. It concludes by setting out a number of recommendations for reform.

Source of income effects for demand decisions and taxable consumption

The relationship between sources of income and demand decisions by the household is examined here with an eye toward the ramifications on consumption tax bases. Income sources may be important when households attach psychic and transaction costs to individual purchases or when sources are assigned via a mental accounting process. In either case, general and specific sales tax bases may be affected by changes in income composition. Empirical results indicate two important findings. First, tax exemptions can introduce significant income source effects for a general consumption tax base. Second, the importance of differential tax rates for gasoline and food-at-home strongly depends on the mix of labour, capital, retirement and non-retirement transfer pay.

The Macroeconomic Impact of the IMF Recommended VAT Policy for the Fiji Economy: Evidence From a Cge Model

Value Added Tax (VAT) is a general consumption tax levied on goods and services. In September 2002, in the face of mediocre economic performance, deteriorating government finances and stagnant investment levels ‐ all due to the political coups of 2000 ‐an increase in VAT was recommended to Fijian policy makers by the IMF as a remedy to Fiji's problems. The Fiji government, without an in depth economy wide repercussions of a VAT policy, welcomed it by announcing a 25% increase in VAT in its 2003 budget. Beginning 1 January 2003 all goods and services were levied a VAT rate of 12.5%. In this paper, we use a computable general equilibrium model to examine the economy wide effects of this VAT policy. We find that while the VAT improves government revenue and brings about a small 0.6% increase in real GDP, it fails to address investment levels. VAT actually leads to a decline in investments and a reduction in real consumption and national welfare. We highlight that large amounts of tax revenue are owed to government. This is three times more than what government will collect from the 25% increase in VAT. In this light, an alternative to VAT is to upgrade government's tax collecting mechanism. From this we deduce that the IMF policy is misdirected.

Fiscal Effects of Social Security Reform in the United States

Social Security is the largest social insurance program in the U.S., and has been shown to be a major determinant of the labor supply decisions of older workers. As such, reforming the Social Security system can have two fiscal impacts: a mechanical effect through changing the rules on benefits entitlements or taxation, and a effect through individual responses to these changes in benefits or taxes. We build a simulation model that computes these effects for major reforms to the system, building on estimated retirement responses to changing net Social Security entitlements. We then estimate the fiscal impact of reform for the 1931-1941 cohort of workers represented by the Health and Retirement Survey. We find that raising the early and normal retirement age by three years would reduce net costs for this cohort by roughly 30%, and that moving to a much higher benefit level would raise net costs by roughly 55%. Importantly, we find that in both cases the behavioral impacts on net costs are relatively small, at most one-third, and generally less than one-fifth of the total. The reason for these small effects is that the U.S. Social Security system is roughly actuarially fair, so that delaying or inducing retirement has relatively little impact on system balances; most of the effects that do arise are due to changes in general income and consumption taxes.

GST and Insolvency Practioner Liability: Who Are You?

[Extract]The imposition of a general consumption tax in Australia from 1 July 2000 has raised interpretation and application issues for many industry groups. One of those groups affected are insolvency practitioners. The legislation, as it operates in relation to them, seems unclear in several respects.

The Value‐Added Tax in Ghana

Ghana's Parliament enacted a value‐added tax (VAT) in December 1994, with collection to begin on March 1, 1995. The short preparation period proved fatal for the tax. However, the nation's fiscal problems continue and the government is resolved to reintroduce the tax in 1998. This article reviews the structure of the failed tax, showing how it would have been a more effective general consumption tax than the system it would have replaced, examines the reasons for its untimely demise, and considers prospects for a successful reintroduction of the tax. Ghana's experience with the VAT can hold important lessons for countries contemplating the introduction of such a tax.

Are Consumption Taxes Regressive?

It is often argued that a general consumption tax is necessarily regressive, particularly because households with high incomes typically save relatively more than those with low incomes. This paper uses very simple tax models to examine the combination of income and consumption taxes. It suggests that it is preferable to consider the overall impact of all taxes and transfers rather than relating payments of a single tax to gross income, instead of the relevant tax base. Insofar as savings might be relevant, attention should be given to the income tax treatment of investment income.

消費税問題の法的検討

消費税問題の法的検討

State and local tax policies: a comparative handbook

Preface Fiscal Outlook and Trends Overview of State and Local Taxation Income Taxes General Sales Taxes Excise and Consumption Taxes Property Taxes Severance Taxes Taxes and Economic Development Tax Administration Conclusion Appendix A: Analyzing Taxes Appendix B: Analytical Designs Appendix C: National and State Organizations and Information Sources Selected Bibliography Index

The Role of Selectivity in Consumption Taxation: Should Consumption Taxes Be Uniform?

This paper examines the role of selectivity in a general consumption tax system. The relevant results from the optimal tax literature are briefly reviewed. Examples are given of the role of exemptions in a general equilibrium model in which all the conditions for uniformity are satisfied except that individuals have different tastes. Exemptions are shown to increase the value of social welfare, using a welfare function which displays inequality aversion. Furthermore, the use of exemptions, combined with a higher rate applied to goods which form a larger proportion of expenditure for high income groups, is examined using a simplified tax and transfer system applied lo a random sample of individuals. It is found that the exemption of food has the largest effect, hut that non-uniformity is a 'blunt' redistributive instrument.

The impact of a hybrid personal tax system on capital accumulation and economic welfare

This paper sets up an aggregated general equilibrium simulation model of a closed economy to study the steady-state effects of alternative tax systems on saving, capital accumulation, and economic welfare. The three systems compared are a progressive income tax, a progressive general consumption tax, where all saving is tax-deductible, and a hybrid system, where households are free to allocate their saving between deductible and non-deductible forms. It is concluded that a switch to the latter system from a progressive income tax yields significantly higher welfare gains than a switch to a progressive consumption tax.

Rationalizing Australian Taxation Revisited*

This paper reviews the author's (1971) tax rationalization proposal to examine whether a tax simplification scheme eliminating minor transaction taxes and reducing heavy reliance on personal income tax by introducing a general consumption tax continues to have merit for Australian tax reform. The first part of the paper points to increases in avoidance and evasion as a major change perceivable in Australian taxation between the 1960s and the 1980s and indicates other important changes that have occurred. Section II presents an equity and simplicity case for general indirect consumption taxation supplemented by personal income and wealth taxes. Section III discusses the inter‐governmental financial relations implications of the proposed rationalization. The paper concludes that in the light of events in 1983 such rationalization proposals suitably modified continue to have merit.