Simulating the Dynamic Macroeconomic and Microeconomic Effects of the FairTax

America's aging coupled with high and growing old–age health and pension benefits augers for much higher payroll taxes, with damaging effects on the U.S. economy. This prognosis is supported by our analysis of a detailed dynamic life–cycle general equilibrium model. The FairTax, which proposes to replace the federal payroll, personal income, corporate income, and estate tax with a progressive consumption tax, offers a potential alternative to this dismal economic future. According to our simulation model, these policy changes would lead to major improvements in the U.S. capital stock, long–run real wages and the well–being of the majority of Americans.