Life Cycle versus Annual Perspectives on the Incidence of a Value Added Tax

Abstract

This paper analyzes the steady-state distribution of tax burdens of a Value Aded Tax (VAT) in the United States using alifetime perspective. In contrast o an anual snapshot perspective, Ifind that aVAT on total expenditures would be proportional over the lifetime. Various modifications to the VAT (zero rating necesites or lump-sum household rebates) would increase the progresivity of the tax substantialy. However, the aditonal progresivity comes at he cost of substantial tax revenue.