Simulating fundamental tax reform in the United States

This paper uses a new, large-scale, dynamic life-cycle simulation model to compare the welfare and macroeconomic effects of transitions to five fundam ental alternatives to the U.S, federal income tax, including a proportional consumption tax and a flat tax. The model incorporates intragenerational h eterogeneity, and a detailed specification of alternative tax systems. Simu lation results project significant long-run increases in output for same re forms. For other reforms, namely those that seek to insulate the poor and i nitial older generations from adverse welfare changes, long-run output gain s are modest.