Weisbach: Consumption Taxation is Still Superior to Income Taxation
Chicago's David Weisbach (with Joseph Bankman of Stanford) recently posted a paper
entitled "Consumption Taxation is Still Superior to Income Taxation" on
SSRN. The paper responds to a forthcoming Stanford Law Review article NYU's Daniel Shaviro criticizing consumption tax
proposals. The abstract is below (an early version of Shaviro's paper is also available).
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.