Series on tax: Part 5 – A primer on consumption tax

Yet more on tax – this is part 5. Here are the blog posts on part 1, part 2, part 2b, part 3, and part 4.

The promised “Part 4b” is still in the pipeline – it’ll appear at some point.

This time we discussed consumption taxes, and the fact that we may not like the idea of taxing consumption differently based on when it occurs.

I avoided talking about commodity taxation and then talking about the result where we don’t want to tax intermediate inputs.  I also avoided going too far into the debate around the Atkinson-Stiglitz paper (Saez here has a great piece(REPEC)).  I feel that when just describing the idea of income, poll, and consumption taxes adding these additional issues would add more confusion and less understanding.  I could have added a bit more at the point where I was talking about Ramsey taxation – especially the point that if people with different ability have different preferences we can use variable consumption taxation as a form of redistribution.  The idea of a progressive consumption tax is interesting.  However, the goal in this article was to make consumption tax relatable to forms of income tax – hopefully that got through 😛

I’m saving a lot of these addition factors for when we introduce the talk on progressivity and the equity-efficiency trade-off for the next article.  Urg.  Let us see if I can manage it in one article!

I have avoided using the term “marginal tax rate”.  I don’t know how I’ve done this.  I suspect it will make an appearence in the next article 😉


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