This paper analyzes the intertemporal allocation effects of anticipated tax-rate changes, reconsidering the recommendations of the Meade Committee in a perfect foresight general equilibrium model of economic growth. We show that the R-base (or consumption) tax can be more distortionary than an income tax and that a revenue-neutral integration of corporate and personal taxation may lower social welfare. Moreover, we argue that a dividend tax dominates the R-base tax because it places its distortions on the financial rather than on the real side of the economy.

It is shown that two of the axioms necessary for the expected utility rule imply the Principle of Insufficient Reason. Whenever a decision maker knows the possible states of the world, but completely lacks information about the plausibility of each single state, he has to behave as if all states occurred with the same objective probability, known with certainty. The result is applied to decision trees and used to solve a problem formulated by Savage in order to discredit the classical version of the Principle of Insufficient Reason.

This paper analyzes the intertemporal allocation effects of anticipated tax rate changes, reconsidering the recommendations of the Meade Committee in a perfect foresight general equilibrium model of economic growth. It is shown that the R-base (or consumption) tax can be more distortionary than an income tax and that a revenue-neutral integration of corporate and personal taxation will lower social welfare. Moreover, it is argued that a dividend tax dominates the R-base tax because it places its distortions on the financial, rather than on the real, side of the economy. Copyright 1989 by American Economic Association.