The Goods and Services Tax, Intertemporal Choice and Domestic Saving: A Theoretical Analysis

This paper develops and simulates a multiperiod utility maximising model using realistic values of interest, inflation and tax rates to assess the effects of the GST package on the consumer's patterns of saving, and consumption over time. It will be shown that a tax-revenue-neutral GST package would increase consumer's welfare and domestic saving. This should help the balance of payments. However, it will also be shown that a simpler and more effective way or achieving the same benefits would be the exemption of interest income up to a limit from income tax.