Economic Council of Canada

Michael J. Daly

Gary J. Lastman

Fadle Naqib

"This paper examines the steady state and transition effects of converting from a graduated income (y) tax to a graduated consumption (c) tax. Our simulation results suggest that considerable dynamic efficiency gains could be achieved by switching to a graduated c-tax, where all saving is tax deductible. An alternative (r) tax system, permitting both tax-deductible and nontax-deductible saving, is also examined. It is shown that not only is such a tax system a feasible way of implementing a progressive c-tax, but also an r-tax without any limits on tax-deductible saving could be more efficient than even a progressive c-tax in a steady state"--Abstract, p. v

Fadle Naqib

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