Identical Twins? Destination-Based Cash-Flow Taxes Versus Consumption Taxes with Payroll Subsidies

By Benjamin Carton, Emilio Fernández Corugedo, Benjamin L Hunt

December 14, 2017

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Benjamin Carton, Emilio Fernández Corugedo, and Benjamin L Hunt. Identical Twins? Destination-Based Cash-Flow Taxes Versus Consumption Taxes with Payroll Subsidies, (USA: International Monetary Fund, 2017) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The Global Integrated Monetary and Fiscal model (GIMF) is a multi-region, forward-looking, DSGE model developed by the Economic Modeling Division of the IMF for policy analysis and international economic research. This paper uses GIMF to illustrate when a destination-based cash-flow tax is equivalent to a combination of a consumption tax and a labor subsidy, as the latter combination have been advocated as proxies for the implementation of destination-based cash-flow taxes. The paper documents the conditions under which both types of taxes are identical and how the equivalence in terms of the real economy and tax revenue responses can be broken, namely after the introduction of finitely lived consumers that value government debt as net wealth (real economy) and the introduction of untaxed government expenditure (tax revenue).

Subject: Consumption taxes, Personal income tax, Public debt, Revenue administration, Taxes, Value-added tax

Keywords: Business taxation, Cash flow, Component of the cl, Consumption goods, Consumption tax, Consumption taxes, DBCFT tax, Distortionary tax, Dynamic stochastic general equilibrium models, Financial accelerator, Global, Government debt, Lump sum tax, Lumpsum tax, Lump-sum tax, Macroeconomic interdependence, Personal income tax, Production tax, Real interest rate, Real value, Tax equivalence, Tax instrument, Tax policy, Tax revenue, Value-added tax, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/276
Stock No:

WPIEA2017276
ISBN:

9781484332993
ISSN:

1018-5941

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