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The Built‐in Flexibility of Income and Consumption Taxes
Author(s) -
Creedy John,
Gemmell Norman
Publication year - 2002
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/1467-6419.00176
Subject(s) - economics , flexibility (engineering) , revenue , consumption (sociology) , tax revenue , tax deferral , public economics , indirect tax , microeconomics , macroeconomics , tax reform , monetary economics , gross income , state income tax , finance , social science , management , sociology
This paper reviews, and synthesises within a uniform framework, a number of analytical results on the built‐in flexibility of taxation. Established results for income taxes are reviewed and integrated with recent results for consumption taxes. These help to provide a better understanding of the determinants of the revenue responsiveness properties of different taxes. They also provide convenient expressions for the calculation of tax revenue elasticities in practice. It is shown that the magnitude of revenue elasticities can be expected to differ substantially for alternative taxes, for different forms of the same tax, and for the same tax over time as incomes change relative to tax thresholds and as consumption patterns change. These results are especially relevant for the many industrialised countries which have undertaken major fiscal reforms in recent years with, often unintended, consequences for revenue elasticities.