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Source of income effects for demand decisions and taxable consumption

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The relationship between sources of income and demand decisions by the household is examined here with an eye toward the ramifications on consumption tax bases. Income sources may be important when households attach psychic and transaction costs to individual purchases or when sources are assigned via a mental accounting process. In either case, general and specific sales tax bases may be affected by changes in income composition. Empirical results indicate two important findings. First, tax exemptions can introduce significant income source effects for a general consumption tax base. Second, the importance of differential tax rates for gasoline and food-at-home strongly depends on the mix of labour, capital, retirement and non-retirement transfer pay.

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Document Type: Research Article

Affiliations: 1: Department of Marketing and Economics, University of West Florida, 11000 University Parkway, Pensacola, FL 32514, USA 2: Andrew Young School of Policy Studies, Georgia State University, 14 Marietta St., NW, Atlanta, GA 30302-3992, USA

Publication date: 2006-11-10

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