Date of Award


Degree Type


Degree Name

Doctor of Philosophy


In the work presented here, I have examined taxpayer behavior under a simple personal tax system. Taxes in this system are not based on current consumption, expenditure or income. Instead, the taxpayer is taxed on his earnings less whatever part of his savings he invests in a tax deferral portfolio. Any liquidations he makes from this portfolio becomes part of the tax base in the year they are made. Investment outside the portfolio bears tax free interest. It affords no tax deduction when acquired and can be liquidated tax free.;The essentials of this system can be captured by a two asset model of accumulation, which yields ready comparisons with other forms of taxation. If we remove one of the savings vehicles, we have a wage tax system. If we remove the other, we have an expenditure tax.;In the thesis I have compared these three types of taxation and drawn a variety of conclusions about the static nature of the two asset tax and dynamic effects switching to the two asset system from other systems. In particular, I have assessed the tax and savings implications of going from an earnings tax system to the two asset system in a life cycle context. There are theoretical results and results from a simulation model.;The main conclusions include the following. Under the two asset system, people pay a present discounted value of taxes which is determined by the PDV of their life time earnings. This horizontal equity feature of the two asset system derives from the income averaging mechanism inherent in it. This averaging process is superior in many respects to the complex averaging proposals previously made for income tax systems.;Movement from almost any tax system to the two asset system will change individual patterns of lifetime savings and taxes. In the situation case studied, we find that current savings will rise and current taxes will fall in aggregate. There is a transitional period in which these changes are larger than in the long run. A "vintage" and a "catch-up" effect are responsible for this initial overshoot.;In transition there will be winners and losers. Generally, it is those in middle age at the time of reform who benefit most.



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