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Consumption Taxation is Still Superior to Income Taxation


Publication Date: 
October 01, 2007
Working Paper
Bibliography: David A. Weisbach and Joseph Bankman, Consumption Taxation is Still Superior to Income Taxation, University of Chicago Law and Economics Olin Working Paper, No. 358


This essay responds to an article by Daniel Shaviro which argues in part that the failure of empirical assumptions behind the permanent income hypothesis undermines the case for preferring consumption taxation over income taxation. We consider each of Shaviro's arguments and conclude that none change the basic considerations in favor of consumption taxation in any significant way. Shaviro concludes that administrability and implementation concerns should be central to the choice of the tax base and that these concerns are likely to point to taxing consumption. We agree with this conclusion.