Lifecycle vs. Annual Perspectives on the Incidence of A Value Added Tax
NBER Working Paper No. 4619 (Also Reprint No. r1892)
This paper analyzes the steady state distribution of tax burdens of a Value Added Tax (VAT) in the United States using a lifetime perspective. In contrast to an annual snapshot perspective, I find that a VAT on total expenditures would be proportional over the lifetime. Various modifications to the VAT (zero rating necessities or giving lump sum household rebates) would increase the progressivity of the tax substantially. However, the additional progressivity comes at the cost of substantial tax revenue.
Published: Tax Policy and the Economy, vol. 8, ed. James M. Poterba, MIT Press, 1994