Income Taxes vs. Sales Taxes: A Welfare Comparison

Economy |
By Grant Casteel and Joseph Haslag | Read Time 1 min

Which tax structure — sales or income — is most preferred by the typical Missourian? Because both types of taxes are distortionary, it is difficult to tell whether welfare is higher under the system relying more heavily on the income tax or under the system relying more heavily on the sales tax. This essay uses quantitative methods built on logically consistent economic theory to compare welfare under the two alternative tax structures.

About the Author

Contributing writer at the Show-Me Institute.

About the Author

Joseph Haslag is a professor and the Kenneth Lay Chair in economics at the University of Missouri Columbia. Until the end of 2018, Professor Haslag was the Institute's chief economist. An expert in monetary policy, Haslag has done research at the Federal Reserve Banks of Saint Louis, Dallas, and Atlanta. He serves on the Federal Reserve Bank of Kansas Citys Economic Roundtable and the Federal Reserve Bank of Saint Louis Business Economic Regional Group. He has taught at Southern Methodist University, Erasmus University in Rotterdam, and Michigan State University. Haslag has published his research in the Journal of Monetary Economics, the Journal of Money, Credit and Banking, and the International Economic Review. His research has been cited in more than 100 academic papers. In his role as director of EPARC, Haslag is a standing member of the Consensus Revenue Forecasting Group that forecasts state revenues for state legislators and the governor.

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