NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Efficiency Gains from Dynamic Tax Reform

Alan J. Auerbach, Laurence J. Kotlikoff, Jonathan Skinner

NBER Working Paper No. 819 (Also Reprint No. r0403)
Issued in December 1981
NBER Program(s):   PE

This paper presents a new simulation methodology for determining the pure efficiency gains from tax reform along the general. equilibrium rational expectations growth path of life cycle economies. The principal findings concern the effects of switching from a proportional income tax with rates similar to those in the U.S. to either a proportional tax on consumption or a proportional tax on labor income. A switch to consumption taxation generates a sustainable welfare gain of almost 2 percent of lifetime resources. In contrast, a transition to wage taxation generates a loss of greater than ? percent of lifetime re- sources. A second general result is that even a mild degree of progressivity in the income tax system imposes a very large efficiency cost.

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Document Object Identifier (DOI): 10.3386/w0819

Published: Auerbach, Alan J., Laurence J. Kotlikoff and Jonathan Skinner. "The Efficiency Gains from Dynamic Tax Reform." International Economic Review, Vol. 24 , No. 1, (February 1983), pp. 81-100. citation courtesy of

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