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Capital Income Taxation in a Growing Open Economy

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Author Info

  • Søren Bo Nielsen

    (Institute of Economics, University of Copenhagen)

  • Peter Birch Sørensen

    (Institute of Economics, University of Copenhagen)

Abstract

The 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 Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 89-14.

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Length: 26 pages
Date of creation: Jul 1989
Date of revision:
Publication status: Published in: European Economic Review, 1991, 35(1) pp 179-97
Handle: RePEc:kud:kuiedp:8914

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Keywords: open economy macroeconomic theory; balance of payments and adjustment mechanisms; income tax;

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Cited by:
  1. Mikael Apel & Jan Södersten, 1999. "Personal Taxation and Investment Incentives in a Small Open Economy," International Tax and Public Finance, Springer, Springer, vol. 6(1), pages 79-88, February.
  2. Turnovsky, Stephen J., 1996. "Fiscal policy, growth, and macroeconomic performance in a small open economy," Journal of International Economics, Elsevier, Elsevier, vol. 40(1-2), pages 41-66, February.
  3. Daisuke Amano & Jun-ichi Itaya & Kazuo Mino, 2014. "Trade Structure and Growth Effects of Taxation in a Two-Country World," KIER Working Papers, Kyoto University, Institute of Economic Research 891, Kyoto University, Institute of Economic Research.
  4. Mourmouras, Iannis A. & Ghosh, Sugata, 2000. "Fiscal Policies and the Terms of Trade in an Endogenous Growth Model with Overlapping Generations," Journal of Macroeconomics, Elsevier, Elsevier, vol. 22(3), pages 445-470, July.
  5. Stephen J. Turnovsky & Marcelo Bianconi, 1992. "The International Transmission of Tax Policies in a Dynamic World Economy," NBER Working Papers 4086, National Bureau of Economic Research, Inc.
  6. Fehr, Hans & Ruocco, Anna, 1999. "Equity and efficiency aspects of the Italian debt reduction," Economic Modelling, Elsevier, Elsevier, vol. 16(4), pages 569-589, December.
  7. Patrick Asea & Stephen Turnovsky, 1997. "Capital Income Taxation and Risk-Taking in a Small Open Economy," UCLA Economics Working Papers, UCLA Department of Economics 768, UCLA Department of Economics.
  8. Shuanglin Lin, 1994. "Capital taxation and accumulation in a growing world economy with deficit finance," International Tax and Public Finance, Springer, Springer, vol. 1(2), pages 127-146, October.
  9. Shibata, Akihisa & Shintani, Mototsugu, 1998. "Capital mobility in the world economy: an alternative test," Journal of International Money and Finance, Elsevier, Elsevier, vol. 17(5), pages 741-756, October.
  10. Yasushi Iwamoto & Akihisa Shibata, 1999. "Foreign Tax Credit and the Current Account," International Tax and Public Finance, Springer, Springer, vol. 6(2), pages 131-148, May.
  11. Shaw, Ming-Fu & Lai, Ching-Chong & Chang, Wen-Ya, 2005. "Anticipated policy and endogenous growth in a small open monetary economy," Journal of International Money and Finance, Elsevier, Elsevier, vol. 24(5), pages 719-743, September.
  12. Petrucci, Alberto, 2006. "Wealth Accumulation and Growth in a Specific-Factors Model of Trade and Finance," Economics & Statistics Discussion Papers esdp06029, University of Molise, Dept. EGSeI.
  13. Donald A. R. George (University of Edinburgh), 2013. "Rational Expectations Dynamics: A Methodological Critique," ESE Discussion Papers, Edinburgh School of Economics, University of Edinburgh 217, Edinburgh School of Economics, University of Edinburgh.
  14. Donald A. R., George & Les, Oxley, 2013. "Rational Expectations Dynamics: A Methodological Critique," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2013-45, Scottish Institute for Research in Economics (SIRE).
  15. Bovenberg, A. Lans & Heijdra, Ben J., 1998. "Environmental tax policy and intergenerational distribution," Journal of Public Economics, Elsevier, Elsevier, vol. 67(1), pages 1-24, January.

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