Research Report Effects of a Federal Value-Added Tax on State and Local Budgets
James R. Nunns, Eric Toder
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A longstanding concern of state and local governments is that a federal value-added tax (VAT) could shrink sales tax bases. But a federal VAT could have even bigger effects on other revenues and spending through changes in incomes, relative prices, and asset values. To illustrate the range of budgetary effects of a VAT, we examine both a broad and narrow based VAT, with no change and an increase in the price level, and both short- and long-run time horizons. We find that, in some circumstances, a federal VAT could even improve the fiscal position of states and localities.
Research Areas Taxes and budgets
Tags State and local tax issues Individual taxes Taxes and business Federal budget and economy
Policy Centers Urban-Brookings Tax Policy Center