Identical Twins? Destination-Based Cash-Flow Taxes Versus Consumption Taxes with Payroll Subsidies

Download or read book Identical Twins? Destination-Based Cash-Flow Taxes Versus Consumption Taxes with Payroll Subsidies written by Benjamin Carton and published by International Monetary Fund. This book was released on 2017-12-14 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Global Integrated Monetary and Fiscal model (GIMF) is a multi-region, forward-looking, DSGE model developed by the Economic Modeling Division of the IMF for policy analysis and international economic research. This paper uses GIMF to illustrate when a destination-based cash-flow tax is equivalent to a combination of a consumption tax and a labor subsidy, as the latter combination have been advocated as proxies for the implementation of destination-based cash-flow taxes. The paper documents the conditions under which both types of taxes are identical and how the equivalence in terms of the real economy and tax revenue responses can be broken, namely after the introduction of finitely lived consumers that value government debt as net wealth (real economy) and the introduction of untaxed government expenditure (tax revenue).