Simulating Fundamental Tax Reform in the United States

DOI Web Site 5 Citations
  • David Altig
    Federal Reserve Bank of Cleveland, Cleveland, OH 44101.
  • Alan J Auerbach
    Department of Economics, University of California, Berkeley, CA 94720.
  • Laurence J Kotlikoff
    Department of Economics, Boston University, 270 Bay State Road, Boston, MA 02215.
  • Kent A Smetters
    The Wharton School, University of Pennsylvania, 3641 Locust Walk, Philadelphia, PA 19104.
  • Jan Walliser
    International Monetary Fund, 700 19th St. NW, Washington, DC 20431.

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<jats:p>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. (JEL H20, C68)</jats:p>

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