Transition Strategies in Fundamental Tax Reform

Item Type Journal paper

This paper discusses transition strategies that might be used in moving from an
income tax to consumption based business taxes in the form of an R-base cash-flow
tax, an R+F-base tax, or an ACE (allowance for corporate equity) tax. While these three taxes have attractive neutrality properties, moving from the status quo to a new system often involves a diffi cult trade-off between short-run losses and longrun gains. We consider two alternative ways of spreading the gains and costs of reform more evenly across generations. Defi cit fi nancing of the large revenue loss that occurs immediately after reform allows the smoothing of wage tax rates over time and the elimination or reduction of short-run income losses. Alternatively, a system of delayed deductions requires fi rms to carry forward with interest some of the large deductions that are newly available after the enactment of a major tax reform. In shifting tax revenue from the future to the present, such policies are politically appealing, as they trade somewhat reduced future income gains for improved economic performance immediately after reform.

Authors Keuschnigg, Christian & Keuschnigg, Mirela
Journal or Publication Title National Tax Journal
Language English
Keywords Keywords: cash-flow taxes, ACE tax, investment, unemployment, transition policies.
Subjects economics
HSG Classification contribution to scientific community
Refereed Yes
Date June 2012
Publisher National Tax Association
Place of Publication Washington
Volume 65
Number 2
Page Range 357-386
Number of Pages 30
ISSN 0028-0283
ISSN-Digital 1944-7477
Depositing User Prof. Dr. Christian Keuschnigg
Date Deposited 07 Apr 2010 09:23
Last Modified 23 Aug 2016 11:07


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Keuschnigg, Christian & Keuschnigg, Mirela (2012) Transition Strategies in Fundamental Tax Reform. National Tax Journal, 65 (2). 357-386. ISSN 0028-0283

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