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  3. American Economic Review
  4. June 2001
  5. Simulating Fundamental Tax Reform in the United States

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Simulating Fundamental Tax Reform in the United States

  • David Altig
  • Alan J. Auerbach
  • Laurence J. Koltikoff
  • Kent A. Smetters
  • Jan Walliser
American Economic Review
vol. 91, no. 3, June 2001
(pp. 574–595)
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Abstract

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.

Citation

Altig, David, Alan J. Auerbach, Laurence J. Koltikoff, Kent A. Smetters, and Jan Walliser. 2001. "Simulating Fundamental Tax Reform in the United States." American Economic Review, 91 (3): 574–595. DOI: 10.1257/aer.91.3.574

JEL Classification

  • E62 Fiscal Policy
  • H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
  • H30 Fiscal Policies and Behavior of Economic Agents: General