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2 edition of effect of a consumption tax on the rate of interest found in the catalog.

effect of a consumption tax on the rate of interest

Feldstein, Martin S.

effect of a consumption tax on the rate of interest

by Feldstein, Martin S.

  • 362 Want to read
  • 9 Currently reading

Published by National Bureau of Economic Research in Cambridge, MA .
Written in English

    Subjects:
  • Individual retirement accounts -- Taxation -- United States -- Mathematical models.,
  • Spendings tax -- United States -- Mathematical models.,
  • Saving and investment -- United States -- Mathematical models.

  • Edition Notes

    StatementMartin Feldstein.
    SeriesNBER working papers series -- working paper no. 5397, Working paper series (National Bureau of Economic Research) -- working paper no. 5397.
    ContributionsNational Bureau of Economic Research.
    The Physical Object
    Pagination31 p. :
    Number of Pages31
    ID Numbers
    Open LibraryOL22414358M

    Figure b. Substitution and income effects of a change in the interest rate: the lender. saving instead is defined by means of the second-period budget constraint (), an unexpected ambiguity arises. It is easy to show that the compensated interest effect on future consumption is positive, i.e., (aC2 /r)u > 0. But since the rate of. Hall () presents the only formal analytic model of the effect on the interest rate of shifting to a consumption tax. His analysis deals with an economy of infinite-lived individuals in which the net-of-tax interest rate would be a constant determined by the time preference parameter of .

    The rate was changed to 27% in , 24% in , and 15% in In , Lithuania replaced its flat tax with progressive rates of 20% and 27%. Mauritius introduced a flat tax rate of 15% on personal income in In , it introduced an additional "solidarity levy" of 5% on high income, for a combined top rate . How Would a Consumption Tax Affect Saving, Investment, the Interest Rate, and Economic Growth? - The supply curve for loanable funds will shift to the right as the after-tax return to saving increases under consumption tax - The equilibrium interest rate will fall, and the .

      Japan, for example, added a 3% consumption tax to its income tax in The Japanese Consumption Tax (JCT) rose to 5% in   In , a two-part tax increase to double the tax . Examples Comparing Income Tax vs. Consumption Tax To better understand the true impact each tax system has upon the consumer and economy at large, consider someone who has $20, and must pay income tax. For the example, assume that the tax rate is 20% and that the pretax interest rate on an investment is 5%.


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Effect of a consumption tax on the rate of interest by Feldstein, Martin S. Download PDF EPUB FB2

The Effect of a Consumption Tax on the Rate of Interest. [Martin Feldstein; National Bureau of Economic Research;] -- This paper analyzes the ways in which substituting a consumption tax for the existing personal and corporate income taxes would affect equilibrium pretax interest rates.

The CD pays an interest rate of 4 percent and they keep it for 20 years. accounts would have an immediate and long-range beneficial effect. The tax penalties on dividends, estates, capital.

The tax reform affected investment through many channels. I use a macroeconomic model to estimate the overall effect. That estimate suggests that, because the different provisions worked in different directions, the initial impact of the tax reform on investment was small.

The same model predicts that the tax reform will hold investment down in the medium : Filippo Occhino. We find that an increase of 50 basis points in the interest rate on deposits leads to an immediate decline of consumption expenditure by 12 percent.

A study of disaggregated monthly consumption expenditure reveals that the decline is primarily in non-food, non-essential by: 5. Consumption should react to the interest rate, although it is well known that, at least theoretically, the effect on consumption of changes in interest rates is ambiguous.

This is because there are several mechanisms by which a change in the interest rate will affect current consumption.

ADVERTISEMENTS: Effects of Taxes: The most important objective of taxation is to raise required revenues to meet expendi­tures. Apart from raising revenue, taxes are considered as instruments of control and regulation with the aim of influencing the pattern of consumption, production and distribution.

Taxes thus affect an economy in various ways, although the effects of [ ]. Once cuts in marginal tax rates are considered, rather than cuts in lump-sum taxes, the effects on income and interest rates become completely different.

The Keynesian consumption function needs to be altered so that consumption depends on after-tax income and after-tax interest rates, rather than pre-tax levels. Similar. Higher interest rates have two main effects: 1) decrease demand for consumption, since the value of saving in the future is worth more than it was previously; 2) decrease the demand for money.

consumption-savings decision for now, and we will come back with the production side in Chapter In a multi-period model, saving-borrowing and the interest rate are key elements. Saving-borrowing allows the consumer to smooth consumption over time.

Because US tax policy currently increases the user cost, the switch to the consumption tax lowers the user cost and increases investment.

Of course, other aggregate variables are also likely to change in response to such a large change to the tax code. For example, nominal interest rates and the supply of savings are likely to change.

The case for a consumption tax is that the tax wedge created by taxing capital income does enormous long-term damage to the economy. Taxing interest, dividends, and capital gains penalizes thrift by taxing away part of the return to saving.

The unavoidable result is less saving than society would choose in the absence of any taxes. Get this from a library. The effect of a consumption tax on the rate of interest.

[Martin S Feldstein; National Bureau of Economic Research.]. Type of indirect tax: Consumption tax. Standard rate: The current consumption tax rate is 10 percent (increased from 8 percent on 1 October ).

A reduced tax rate of 8 percent still applies to certain supplies (see further explained below). What supplies are liable to the standard rate. The interest rate generally changes as a result of other changes in the economy.

These4 other changes may have separate effects on consumption and saving, but this paper studies only the direct effect of the interest-rate change. 4 section reviews evidence about two aspects of individuals' preferences that affect. Table shows the present values of capital consumption allowances z and the rates of economic depreciation l consumption allowances are deductions from income for tax purposes and must be distinguished from tax credits, which are deductions from tax liabilities.

The Effect of a Consumption Tax on the Rate of Interest Martin Feldstein. NBER Working Paper No. Issued in December NBER Program(s):Public Economics. This paper analyzes the ways in which substituting a consumption tax for the existing personal and corporate income taxes would affect equilibrium pretax interest rates.

The effect of the VAT rate change on aggregate consumption and economic growth May Bumpei Miki1 Abstract The purpose of this paper is to empirically determine the effect of a change in a country’s Value Added Tax (VAT) rate on its aggregate consumption and its economic growth.

As for the effect. For properties to be taken ownership of after April 1,buyers were permitted to purchase at a consumption tax rate of 5% by concluding their sales contract by Septem Also, the average sales price peaked between July and September Tax Rates Enterprises (generally companies) are subject to the tax rates imposed under the CIT Law.

The standard CIT rate is 20%. Companies operating in the oil and gas industry are subject to CIT rates ranging from 32% to 50% depending on the location and specific project conditions.

Companies engaging in prospecting, exploration and. An increase in consumption taxes (sales tax) and/or in taxes on investments (capital gains tax) would have a much different impact. If income taxes go up, rates of both consumption and investment.

The models considered in this book until now treat consumption in a very simple way. In the Solow model, individuals save a constant fraction of their income. In the main short-run that the real interest rate will also be 2 percent, exactly equal to the growth rate.

To the extent.The predictions of the model indicate that consumption taxes affect the ‘net after‐tax rate of return on physical capital’ (Mendoza et al., ) only indirectly via the labour–leisure choice, which in turn impacts the capital‐to‐labour ratio employed in production.

Higher taxes on consumption, for example, VAT, also affect the. Interest Rate Changes. Central banks adjust interest rates, either up or down,in order to combat inflation or spur economic activity when the economy st rates affect the cost of.