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Are Consumption Taxes Regressive?
Author(s) -
Creedy John
Publication year - 1998
Publication title -
australian economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.308
H-Index - 29
eISSN - 1467-8462
pISSN - 0004-9018
DOI - 10.1111/1467-8462.00057
Subject(s) - economics , consumption (sociology) , consumption tax , investment (military) , tax deferral , gross income , income tax , monetary economics , public economics , state income tax , macroeconomics , labour economics , tax reform , social science , sociology , politics , political science , law
It is often argued that a general consumption tax is necessarily regressive, particularly because households with high incomes typically save relatively more than those with low incomes. This paper uses very simple tax models to examine the combination of income and consumption taxes. It suggests that it is preferable to consider the overall impact of all taxes and transfers rather than relating payments of a single tax to gross income, instead of the relevant tax base. Insofar as savings might be relevant, attention should be given to the income tax treatment of investment income.