Should the US streamline its tax system? Analysis on an endogenous growth model

- We study an endogenous growth model with 3 sectors, calibrated for the US.
- We examine three fiscal policy reforms.
- Adopting a consumption tax system increases growth and welfare.
- Adopting an income tax system decreases growth and welfare.
- Eliminating double taxation yields non-negligible growth and welfare gains.

We evaluate the growth and welfare effects of budget-neutral reforms in the US tax system. Large gains in welfare and growth could result from adopting a consumption-based tax system. In contrast, significant welfare and growth losses would follow after implementing an income tax-based reform. Eliminating double taxation of firms' profits would yield non-negligible welfare and growth gains.