NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Neglected Effects on the Uses Side: Even a Uniform Tax Would Change Relative Goods Prices

Don Fullerton, Diane Lim Rogers

NBER Working Paper No. 5937
Issued in February 1997
NBER Program(s):   PE

Fundamental tax reform may change relative prices of consumption goods and may therefore have important effects on the uses side that are ignored by most general equilibrium simulation models. For a uniform rate of tax, in our model, results on the uses side are driven by the nonuniform tax system being replaced. Similar effects occur under any uniform and comprehensive tax reform, whether the current system is replaced by a consumption tax, a wage tax, or a pure income tax. Any such reform that eliminates the current preferential treatment of housing would impose an additional one-time levy on the elderly, and any reform that eliminates the current double taxation of corporate capital would reduce the relative prices of corporate-capital-intensive goods bought by the poor.

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Document Object Identifier (DOI): 10.3386/w5937

Published: American Economic Review, vol.87, no.2, (May 1997): 120-125. citation courtesy of

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