The Built-Flexibility of Consumption Taxes.

The purpose of this paper is to extend the analysis of built-in flexibility to various forms of consumption taxation. This is useful in view of the extensive use of indirect taxes. Section 2 begins with basic definitions and a discussion of income taxation, concentrating on the multi-step case. This is needed in view of the fact that consumption is from income net of income taxation. Section 3 extends the analysis to include ad valorem and unit consumption taxes. Section 4 examines the implications for the revenue ealsticity of changes in indirect tax rates. Some illustrative calculations are reported in section 5. Section 6 briefly concludes.