Capital Income Taxation in a Growing Open Economy
AbstractThe paper studies the dynamic macroeconomic effects of various forms of capital income taxation in a model of a small open economy with perfect mobility of financial capital and intertemporal optimization on the part of households and firms. One of the noteworthy results is that the introduction of a (low) corporate income tax will not affect consumption in the long run, but will simply lead to a replacement of shares by foreign financial assets in household portfolios. It is also found that an anticipated investment tax credit can have and that an anticipated dividend tax will have contractionary effects on investment before they are introduced. Moreover, it is shown that while an unanticipated dividend tax is neutral with respect to investment, it will have real effects on consumption and net foreign assets in a growing economy.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 89-14.
Length: 26 pages
Date of creation: Jul 1989
Date of revision:
Publication status: Published in: European Economic Review, 1991, 35(1) pp 179-97
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More information through EDIRC
open economy macroeconomic theory; balance of payments and adjustment mechanisms; income tax;
Other versions of this item:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
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