While I was studying eighth edition of Mankiw's Macroeconomics, in chapter 9 on Economic Growth(pg. 245), the author mentions :**"Some economists have proposed increasing the incentive to save by replacing the current system of income taxation with a system of consumption taxation."** Here, the book was discussing on the topic of government policies that affect rate of saving and spur growth. My question is that doesn't this finding contradicts with **Second Welfare Theorem** in Microeconomics, according to which, the taxation should be on endowments and not on consumption goods so that we can have Pareto Efficient allocation(refer Varian's Intermediate Microeconomics eighth edition Ch. 31, pg 605)? Or am I wrong in superimposing the micro concept over macro?
Consumption is a function of wealth. It is a stock variable. Income is a flow variable and is how much wealth can potentially increase. A tax on consumption is, de facto a tax on wealth (or endowment)
