Value-Added Tax as a Source of Social Security Financing

Abstract

This article considers the effects on income distribution and the incentive to save of the partial substitution of the value-added tax for the payroll tax for social security. The Harberger-type model is employed in which the sources and uses of income are taken into account in determining the effects of the tax substitution. Attention is given to the distribution of both actual and full income. The data for this analysis are drawn mainly from the Consumer Expenditure Survey conducted by the Bureau of Labor Statistics during 1972 and 1973.

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