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American Economic Review: Vol. 91 No. 3 (June 2001)

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Simulating Fundamental Tax Reform in the United States

Article Citation

Altig, David, Alan J. Auerbach, Laurence J. Koltikoff, Kent A. Smetters, and Jan Walliser. 2001. "Simulating Fundamental Tax Reform in the United States." American Economic Review, 91(3): 574-595.

DOI: 10.1257/aer.91.3.574

Abstract

This paper uses a new, large-scale, dynamic life-cycle simulation model to compare the welfare and macroeconomic effects of transitions to five fundamental alternatives to the U.S. federal income tax, including a proportional consumption tax and a flat tax. The model incorporates intragenerational heterogeneity and a detailed specification of alternative tax systems. Simulation results project significant long-run increases in output for some reforms. For other reforms, namely those that seek to insulate the poor and initial older generations from adverse welfare changes, long-run output gains are modest.

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Authors

Altig, David (Federal Reserve Bank of Cleveland)
Auerbach, Alan J. (U CA, Berkley)
Koltikoff, Laurence J. (Boston U)
Smetters, Kent A. (U PA)
Walliser, Jan (IMF)

JEL Classifications

E62: Fiscal Policy
H24: Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
H30: Fiscal Policies and Behavior of Economic Agents: General


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