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As promised: long and boring thread about income vs consumption tax. TL;DR they are not as different as you might think. Income taxation distorts saving and consumption taxes are harder to make progressive in the short term, but they are close cousins 1/29
Let’s start with (national) income identity:
Labor income (L)+Capital Income (K)+Transfers (G) -Taxes (T)=Consumption (C)+Saving (S)
where T should be thought of here as taxes other than consumption/income tax that we are about to introduce.
I’ll mostly ignore foreigners 2/29
What would be an income tax? It’d be a tax on the left hand side or it could also be a tax on L+K (not the same from distributional and political economy standpoint, but I’ll put it aside). I’ll mostly ignore T and G and think about L+K. 3/29
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