Expenditure taxation has a long and noble lineage. Thomas Hobbes is generally credited with fathering the modern view of the levy on expenditures. His idea was honed and developed further by several of the most notable economists in the history of the profession.

John Stuart Mill, Alfred Marshall, A. C. Pigou, Irving Fisher, Luigi Einaudi, Nicholas Kaldor, J. E. Meade (Davies 1961:584), John Maynard Keynes (Kaldor 1955:12), and Martin Feldstein “Why Washington Likes …” 1983:80–2), all of whom bring impeccable credentials to the discussion, are proponents of the expenditure tax. The main reason for their advocacy is the strong technical appeal of the tax. An appropriately designed expenditure levy is superior to an income tax on both efficiency and equity grounds. This notion will be developed further in this chapter.

Issues in income and expenditure taxation

Cursory examination of the arguments for and against an expenditure tax indicates that it, more than an income tax, could approximate the ideals of efficiency and equity. There is even general evidence that a cash-flow tax would be easier to administer than a comprehensive income tax, although account must be taken of the potential transition and international problems arising from a switch in the tax base.