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Capital tax reform, corporate finance, and economic growth and welfare

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  • Strulik, Holger

Abstract

Recent empirical studies have revealed a strong impact of tax changes on corporate finance. Yet, models of economic growth usually neglect financial structure of the representative firm. In order to investigate whether the consideration of firm finance modifies the estimated outcome of capital tax reforms, a corporate sector is introduced in three popular popular models of economic growth. The paper explores analytically the impact of taxation on structures of finance and production and gives a quantitative reassessment of growth and welfare effects of tax reforms in the U.S. economy. A general result is that standard models of exogenous and endogenous growth overestimate the growth effect and underestimate the welfare gain from tax reform.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 28 (2003)
Issue (Month): 3 (December)
Pages: 595-615

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Handle: RePEc:eee:dyncon:v:28:y:2003:i:3:p:595-615

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Citations

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Cited by:
  1. Michael Funke & Holger Strulik, 2006. "Taxation, Growth and Welfare: Dynamic Effects of Estonia's 2000 Income Tax Act," Finnish Economic Papers, Finnish Economic Association, vol. 19(1), pages 25-38, Spring.
  2. Strulik, Holger & Trimborn, Timo, 2010. "Laffer Strikes Again: Dynamic Scoring of Capital Taxes," Hannover Economic Papers (HEP) dp-454, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  3. Gómez, Manuel A. & Sequeira, Tiago N., 2014. "Should the US streamline its tax system? Analysis on an endogenous growth model," Economic Modelling, Elsevier, vol. 37(C), pages 113-119.
  4. Bazdresch, Santiago, 2013. "The role of non-convex costs in firms' investment and financial dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 929-950.
  5. Peter A. Schmid, 2013. "The destabilizing effect of company income taxation," Society and Economy, Akadémiai Kiadó, Hungary, vol. 35(3), pages 365-388, September.
  6. Strulik, Holger & Trimborn, Timo, 2008. "Anticipated Tax Reforms and Temporary Tax Cuts: A General Equilibrium Analysis," Hannover Economic Papers (HEP) dp-406, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  7. Michael Funke & Holger Strulik, 2005. "BOFIT Discussion Papers - Taxation, growth and welfare: Dynamic effects of Estonia’s income tax act," Money Macro and Finance (MMF) Research Group Conference 2005 55, Money Macro and Finance Research Group.

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