Clemens Fuest, Bernd Huber

The Effect of Income Shifting on the Efficiency Properties of Consumption-Tax Systems

Section: Articles
FinanzArchiv (FA)

Volume 61 () / Issue 2, pp. 139-153 (15)

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It is well known that consumption-tax systems have several advantages over existing income-tax systems, such as greater administrative simplicity and intertemporal neutrality. Despite these advantages, proposals to introduce consumption taxes have only had very limited success. This paper discusses possible explanations for the reluctance of governments to switch to consumption taxation. Our analysis focuses on the role of income shifting as a drawback for consumption-tax reform. We consider a model where taxpayers may shift income between the personal and the corporate income-tax base. In this model, a consumption-tax system characterized by intertemporal neutrality and uniform tax rates on personal and corporate income is not second-best efficient.

Clemens Fuest Geboren 1968; 1987–91 Studium der Volkswirtschaftslehre in Bochum und Mannheim; 1994 Promotion; 2000 Habilitation; seit 1995 wiss. Assistent am Staatswirtschaftlichen Institut der Universität München.

Bernd Huber No current data available.