Consumption tax reforms hurt young and poor households, decreasing welfare.
Consumption tax reforms can have different effects when considering durable goods. In a model that includes durable consumption, shifting to consumption taxes may not always be beneficial. This is because consumption taxes can make durable goods more expensive without helping with borrowing constraints. This can lead to a decrease in welfare, especially for young and poor households, as borrowing cannot fully protect against income risks. In these cases, welfare decreases and there is negative redistribution.