ALTERNATIVE TRANSITIONS TO A CONSUMPTION TAX

The transitions from a flat rate income tax to alternative flat rate consumption taxes are simulated. Replacing the income tax with a VAT continues to result in the same dramatic intergenerational transfer found by previous researchers. Converting to a personal expenditure tax results in nearly zero intergenerational redistribution. The annually balanced budget constraint used in previous simulations results in wide fluctuations in both tax and savings rates over the transition. Allowing the government to use deficits and surpluses to smooth out the tax rate further reduces the intergenerational transfer, and dampens the fluctuations in net savings.