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| Author: | Holmes, J.M. Smyth, D. Hutton, P. |
| Title: | Monetary effects of a consumption tax |
| Journal: | Pacific Economic Review
2004 : FEB, VOL. 9:1, p. 75-79 |
| Index terms: | Consumption Taxation Models |
| Language: | eng |
| Abstract: | This paper analyzes the short-run effects of a consumption tax increase (VAT or national sales tax) on aggregate demand. Because it increases the prices paid by consumers relative to the prices received by suppliers, a consumption tax affects the supply of real money balances, in addition to reducing expenditures. Hence, when a consumption tax replaces an income tax so as to maintain a balanced government budget, the net effect can plausibly be contractionary. |
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