The economic effects of the fair tax: analysis of results of a dynamic CGE model of the US economy

Bhattarai, Keshab; Haughton, Jonathan; Tuerck, David G.

Abstract

By replacing the current income tax with a national sales tax, the FairTax proposal would end the double taxation of saving inherent in the existing tax code and, by doing so, raise output, employment, investment and capital stock relative to the benchmark economy. While these positive effects would be felt almost immediately, the FairTax is very much an investment in the future. Its full benefits would be realized only after the economy achieved a new “steady state,” some 20–25 years into implementation. Only by that point, will the effects on growth have been fully absorbed into the economy and the wellbeing of most households across most income groups improved. The policy choice, then, is between the status quo, and a new policy that would inflict some short-run pain as the price of a permanently expanded economy.

• Journal Article Type: Article
• Publication Date: 2016-07
• Journal: International economics and economic policy
• Print ISSN: 1612-4804
• Electronic ISSN: 1612-4812
• Publisher: Springer Verlag
• Peer Reviewed: Peer Reviewed
• Volume: 13
• Issue: 3
• Pages: 451-466
• APA6 Citation: Bhattarai, K., Haughton, J., & Tuerck, D. G. (2016). The economic effects of the fair tax: analysis of results of a dynamic CGE model of the US economy. International economics and economic policy : IEEP, 13(3), (451-466). doi:10.1007/s10368-016-0352-4. ISSN 1612-4804
• DOI: https://doi.org/10.1007/s10368-016-0352-4
• Keywords: Dynamic CGE; Tax reform; Growth; Distribution; US economy
• Publisher URL: http://link.springer.com/article/10.1007/s10368-016-0352-4
• Copyright Statement: © The Author(s) 2016. Open Access. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.
• Additional Information: Copy of article first published in: International economics and economic policy, 2016, v.13 issue 3.