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Implementing a Dual Income Tax in Germany:Effects on Investment and Welfare

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Author Info
Doina Maria Radulescu
Michael Stimmelmayr

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Abstract

This paper investigates the effects of implementing a dual income tax (DIT) in Germany. We follow the reform proposal of the German Council of Economic Advisors(2003) and analyze its implications on capital formation, investment and welfare using a dynamic computable general equilibrium model. The main features of the model are an intertemporal investment model and the traditional Ramsey model on the household side. Our findings suggest that the introduction of a DIT with a proportional capital income tax rate of 30% and progressive labour income tax rates up to 35% leads to higher investments, an increased capital accumulation up to 5.8% and welfare gains of about 1% of GDP.

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File URL: http://www.cesifo-group.de/DocDL/IfoWorkingPaper-20.pdf
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Publisher Info
Paper provided by Ifo Institute for Economic Research at the University of Munich in its series Ifo Working Paper Series with number Ifo Working Papers No. 20.

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Date of creation: 2005
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Handle: RePEc:ces:ifowps:_20

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Related research
Keywords: Capital income taxationcomputable general equilibrium modellingwelfareanalysis.;

Find related papers by JEL classification:
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models
D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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This page was last updated on 2009-11-28.

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