Economists Map Competing Trade-offs in How Nations Should Tax Spending
A major review of consumption tax theory reveals that policymakers face hard choices between raising revenue, promoting fairness, and encouraging growth—with no single optimal approach. The findings suggest governments need clearer frameworks for deciding which goods to tax more heavily and how much total revenue to extract through consumption levies.
Originaltitel: How Should Consumption Be Taxed?
<p>We review the theoretical justification for consumption taxes in advanced economies, providing a systematic review of the extensive public finance literature that examines how goods and services should be taxed. Our discussion focuses on both the determinants of the optimal level of consumption taxation relative to other taxes, as well as the optimal differentiation of taxes across goods and services. We blend classical public finance results, recent developments in the optimal tax literature, and practical considerations. The aim is to provide guidance to academics and policymakers on the main trade-offs in consumption taxation and to highlight important areas where further research is needed.</p>