Journal Article

The transition to consumption taxation, Part 2: the impact on existing financial assets

Abstract: Replacing the income tax with a consumption tax is likely to reduce the total value of the capital stock. Alan D. Viard reviews how this decline is divided between bondholders and stockholders and the effect on household borrowers and lenders. He explains that the results depend on whether monetary policy accommodates the tax through a higher price level. Without accommodation, the decline in the value of capital is largely borne by stockholders and there is little reallocation of wealth between household borrowers and lenders. If the tax is fully accommodated, bondholders bear heavier burdens than stockholders and household borrowers gain at the expense of the household lenders.

Keywords: Taxation; Stocks; Monetary policy; Wealth;

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Economic and Financial Policy Review

Publication Date: 2001

Issue: Q II

Pages: 20-31