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The Welfare Loss from Differential Taxation of Sectors in Germany

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Author Info
Doina Maria Radulescu ()
Michael Stimmelmayr ()

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Abstract

In the spirit of Harberger, we apply a dynamic computable general equilibrium (CGE) model and estimate the excess burden stemming from the tax-induced distortion in the allocation of capital across the corporate and the non-corporate sectors in Germany. In doing so, we perform a counterfactual analysis and ask how the allocation of capital across sectors would change compared with a sector-neutral tax system which assures an identical effective tax burden on both sectors. Our estimates suggest that the excess burden per period ranges from 2.0 to 3.6 billion Euros or from about 0.1 to 0.16 per cent of GDP. In present value terms, the excess burden translates to about 104 billion Euros or 4.7 per cent of GDP. In order to identify the impact of the firm’s financial behaviour on the size of the emerging excess burden, we perform several sensitivity analyses with regard to debt financing, external equity financing and debt constraints via agency cost.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2423.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2423

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Related research
Keywords: capital income taxation; non-uniform taxation; computable general equilibrium modelling;

Find related papers by JEL classification:
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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