Heidelberg Congress on Taxing Consumption: Proceedings of the International Congress on Taxing Consumption, Held at Heidelberg, June 28–30, 1989

543 Pages·1990·24.071 MB·English

by  Manfred Rose (auth.), Professor Dr. Manfred Rose (eds.)

Manfred Rose (Ed.)
Heidelberg Congress
on Taxing Consumption
Proceedings of the International Congress on Taxing
Consumption, Held at Heidelberg, June 28-30, 1989
With Contributions by
Henry 1. Aaron, Charles L. Ballard, Robin Boadway, Geoffrey Brennan
James M. Buchanan, Bernd Genser, John Kay, Gerold Krause-Junk
Joachim Lang, Charles E. McLure, Jr., Dennis C. Mueller
Peggy B. Musgrave, Richard A. Musgrave, Manfred Rose, Christian Seidl
Peter B. S0rensen, Richard E. Wagner, George R. Zodrow
With 18 Figures
Springer-Verlag Berlin Heidelberg New York
London Paris Tokyo Hong Kong
Professor Dr. Manfred Rose
Alfred-Weber-Institute
Faculty of Economics
University of Heidelberg
Grabengasse 14
D-6900 Heidelberg, FRG
ISBN-13: 978-3-642-75793-8 e-ISBN-13: 978-3-642-75791-4
DOl: 10.1007/978-3-642-75791-4
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Preface
In June 1989 the Faculty of Economics of the University of Heidelberg and the Alfred
Weber-Gesellschaft organized a congress on taxing consumption in Heidelberg. At this
congress prominent academicians] tax policy experts, tax lawers, tax consultants, and
business leaders met in order to analyze and discuss new issues about the pure
economic merits, political economy, administrative complexity, legislative conse
quences, and international problems of consumption-based tax systems.
I should like to thank Benediktus Hardorp and Gotz Werner who were unwavering in
their support and encouragement to set up this congress. It is also gratefully
acknowledged that Gotz Werner and his company 'dm-drogerie markte' generously
provided the main funds for the congress and the publication of this volume. Of course,
a further main obligation is to Wolfgang Kostlin and Karin Schlampp who had the local
organization so well in hand and who were supported by a group of students of my
seminar whom I would like to thank as well.
The scientific results of the congress will be published in two different volumes. The
papers written in English are contained in this volume. The German papers and the
papers dealing with topics which are of special interest to German readers will appear
in a separate German volume. Both volumes also contain the comments of the formal
discussants.
The papers published here are revised versions, taking into account the comments of
the formal discussants as well as the comments of other congress participants. Their
grouping runs parallel to the congress program according to the topics dealt with in the
different working groups.
I am particularly grateful to Karin Schlampp, who directed the editing, to Tomas
Farken, who provided assistance in solving word processing problems and to Irene
Ro[3ler for preparing accurate references.
Heidelberg
April 1990 Manfred Rose
Contents
Page
v
Preface
P ART ONE: Opening Lectures
Manfred Rose
THE SUPERIORITY OF A CONSUMPTION-BASED TAX SYSTEM 3
I. Introduction 3
II. Alternative Ways of Attaining a Consumption-based Tax System 5
ill. Principal Reasons for Favouring the Consumption Approach in Taxation 8
A. Tax Incidence and the Real Burden of Taxation 8
B. Functional Efficiency Virtues of Taxing Consumption 9
C. Minimizing Excess Burdens by Taxing Consumption 16
D. Equity Virtues of Taxing Consumption 21
IV. Strategies in Favour of a Consumption-based Tax System 23
RichardA. Musgrave
ON CHOOSING THE "CORRECT" TAX BASE -
A HISTORICAL PERSPECTIVE 29
I. National Income or Output as Potential Base 30
II. Personal Income as Index of Taxable Capacity 31
ill. The Case for Consumption as Tax Base 33
IV. Minimizing Dead-Weight Loss 37
VIII
PART TWO: Theoretical and Empirical Foundations of Taxing
Consumption
Robin Boadway
THE SHORT RUN AND LONG RUN WELFARE EFFECTS OF
IMPLEMENTING A PRACTICAL SYSTEM OF CONSUMPTION TAXATION 45
I. Introduction 45
II. Main Issues in the Design of a Feasible Consumption Tax Base 47
ID. The Effects of Personal Tax Base Reform on Saving and Welfare 50
IV. Dynamic We.lf are Economics: A Cursory Review of the Literature 62
V. The Relevance of Dynamic Welfare Theory for Tax Reform 69
Comments by Michael Ahlheim 78
John Kay
CONSUMPTION AND INCOME TAXATION: HORIZONTAL EQUITY
AND LIFE CYCLE ISSUES 85.
I. Introduction 85
II. Income and Consumption Taxes in a Simple Life Cycle Model 89
ID. Extensions to the Basic Model 96
IV. Principles of Horizontal Equity 103
V. Conclusions 106
Comments by Syed M. Ahsan 109
IX
Peter Birch Sj)rensen
TAXATION OF INCOME, CONSUMPTION, AND WAGES
IN AN OPEN ECONOMY 117
I. Introduction 117
ll. The Household Sector 119
ill. The Business Sector 124
IV. The Government 125
V. The Model with Exogenous Terms of Trade 126
VI. The Effects of Tax Policy when the Terms of Trade are Exogenous 128
VII. Tax Policy and the Terms of Trade 131
Vill. Summary and Conclusion 134
Comments by Pierre Pestieau 142
Charles L. Ballard
ON THE SPECIFICATION OF SIMULATION MODELS FOR
EVALUATING INCOME AND CONSUMPTION TAXES 147
I. Introduction 147
ll. The Simulation Models 149
A. A Model with a Simple Present!Puture Choice 149
B. Infinite-Horizon Model 153
C. Overlapping-Generations Life-Cycle Model 157
ill. Results 160
IV. Conclusion 171
Comments by Gunter Stephan 178
Comments by Karl W. Roskamp 181
X
PART THREE: Taxing Consumption from a Public Choice
and Constitutional Point of View
Geoffrey Brennan and James M. Buchanan
CONSUMPTION TAXATION AND DEMOCRATIC PROCESS 191
I. The Public Choice Approach to Tax Issues 191
ll. The Political Model: Modified Leviathan 195
Ill. Tax Substitution: Consumption versus Income Taxation 204
A. Consumption Tax and Tax Efficiency 205
B. Cost Share Effects 207
C. Fiscal Illusion 208
D. Summary 209
IV. Tax Supplementation: Consumption Tax and the Tax Mix 210
V. In Summation 216
Comments by Peter Bernholz 218
Comments by Frans van Winden 221
Dennis C. Mueller
PUBLIC CHOICE AND THE CONSUMPTION TAX 227
I. Public Choice Considerations 228
ll. Flies in the Public Choice Ointment 232
III. The Adoption of the Personal Income Tax in the United States 234
IV. Conclusions 237
Comments by Bengt -Arne Wickstrom 240
XI
Richard E. Wagner
FISCAL PRINCIPLE, FISCAL POLITICS,
AND CONSUMPTION TAXATION 247
I. Fiscal Principle and the Grammar of Tax Advocacy 248
II. Optimal Discrimination through Political Processes? 251
III. Self Interest, Political Incentive, and Consumption Taxation 254
IV. Fiscal Politics in Constitutional Perspective 259
Comments by Charles B. Blankart 264
PART FOUR: Legal Aspects of Taxing Consumption
Joachim Lang
TAXING CONSUMPTION FROM A LEGISLATIVE POINT OF VIEW 273
I. Introduction 273
II. Constitutional Fundamentals of Taxation 275
A. Taxation in a Democratic State Based on the Rule of Law 275
1. The Rule of Law 275
2. Reform of the Tax Law in a Democracy 275
2.1. Stable und Unstable Elements of the Law in a Democracy 275
2.2. Juridico-Economic Perspectives of Tax Reforms 277
2.3. Fundamental Reform of the Tax Law in a Democracy? 290
XII
B. Equality, Liberty and Social Solidarity as Constitutional Fundamentals
for a Consumption-orientated Reform of Tax Systems 292
1. On the Constitutionally Guaranteed Basic Consensus as regards
Equality, Liberty and Social Solidarity 292
2. Equality 294
2.1. System-Consistent Taxation in Accordance with the Ability to Pay 294
2.2. Consumption as a Fair Indicator of a Person's Ability to Pay Taxes 295
3. Liberty and Social Solidarity 296
3.1. The Concept of the "Social Market Economy" 296
3.2. Adequacy of Consumption Taxation within a Free
Enterprise System 299
3.3. Neutrality of Consumption Taxation 299
3.4. Prerequisites for Social Solidarity 302
m. Approaches to a Consumption-orientated Reform of the German Tax System 311
A. Necessity for a Multiple Tax System Based on Diverse
Ability-to-pay Indicators 311
B. Juridico-Institutional Framework 311
C. Substitution of the Income Tax, the Corporation Tax, the Trade Tax
(Gewerbesteuer) and the Wealth Tax (Vermogensteuer) by a General
Tax on the Consumed Income and a General Tax on the Saved Income 315
D. Extension of the Corporation Tax to a General Tax on the Saved Income 316
1. Approach: Separate Taxation of Saved Income and
Consumable Income 316
2. The General Tax on the Saved Income as a "Business Tax"
("Betriebsteuer"); Technicalities 318
3. Relationship between the Proportional "Business Tax" and
the Progressive Tax on the Consumable Income 319
E. On the Legislative Realization of the Concept 322
IV. Summary 322