Built-in flexibility of taxation and stability when tax liabilities respond with a time lag
Item Type:Journal article
Citation:D.J. Smyth, 'Built-in flexibility of taxation and stability when tax liabilities respond with a time lag', Economic and Social Research Institute, Economic and Social Review, Vol.7 (Issue 1), 1975, 1975, pp79-86
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Given tax rates, tax revenues rise as income rises. This property of a tax system is known as 'built-in flexibility of taxation' and it is widely regarded as a stabilising force. The present paper analyses a model in which tax liabilities are a lagged function of income and consumption adjusts to disposable income either with or without time lags. It is shown that in such a system built-in flexibility of taxation is de-stabilising rather than stabilising, that short (two period) oscillations may be induced and that the magnitude of an economy's fluctuations may be increased.
Author: Smyth, D.J.
Publisher:Economic and Social Research Institute
Type of material:Journal article
Series/Report no:Economic and Social Review
Vol.7 (Issue 1), 1975
Availability:Full text available