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Capital Gains Tax Cuts, Investment, and Growth

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  • Steven M. Fazzari
  • Benjamin Herzon

Abstract

Congress currently is considering changes in the capital gains tax, including reducing the rate, indexing the rate to inflation, or some combination of reduction and indexing. These changes have been advocated on the grounds that a cut in the rate will stimulate investment and economic growth. In this working paper, Research Associate Steven M. Fazzari and Benjamin Herzon, a doctoral candidate at Washington University, present a theoretical analysis of the effect of a tax cut on the cost of capital, investment, and output.

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File URL: http://www.levyinstitute.org/pubs/wp147.pdf
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Bibliographic Info

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_147.

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Date of creation: Oct 1995
Date of revision:
Handle: RePEc:lev:wrkpap:wp_147

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Web page: http://www.levyinstitute.org

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References

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  1. Robert S. Chirinko, 1992. "Business Fixed Investment Spending: A Critical survey of Modeling Strategies, Empirical Results, and Policy Implications," Working Papers 9213, Harris School of Public Policy Studies, University of Chicago.
  2. Martin Feldstein & Lawrence H. Summers, 1979. "Inflation and the Taxation of Capital Income in the Corporate Sector," NBER Working Papers 0312, National Bureau of Economic Research, Inc.
  3. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  4. James M. Poterba, 1989. "Venture Capital and Capital Gains Taxation," NBER Working Papers 2832, National Bureau of Economic Research, Inc.
  5. Yolanda K. Henderson, 1986. "Lessons from federal reform of business taxes," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 9-25.
  6. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-46, April.
  7. Alan J. Auerbach, 1982. "Taxation, Corporate Financial Policy and the Cost of Capital," NBER Working Papers 1026, National Bureau of Economic Research, Inc.
  8. R. Glenn Hubbard, 1997. "Capital-Market Imperfections and Investment," NBER Working Papers 5996, National Bureau of Economic Research, Inc.
  9. Robert E. Hall, 1981. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
  10. Steven M. Fazzari & Anna Maria Variato, 1994. "Asymmetric Information and Keynesian Theories of Investment," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 16(3), pages 351-369, April.
  11. Fullerton, Don, et al, 1981. "Corporate Tax Integration in the United States: A General Equilibrium Approach," American Economic Review, American Economic Association, vol. 71(4), pages 677-91, September.
  12. Jonathan Skinner & Daniel Feenberg, 1990. "The Impact of the 1986 Tax Reform Act on Personal Saving," NBER Working Papers 3257, National Bureau of Economic Research, Inc.
  13. Laurence H. Meyer & Joel L. Prakken & Chris P. Varvares, 1993. "Policy Watch: Designing an Effective Investment Tax Credit," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 189-196, Spring.
  14. Joseph J. Minarik, 1992. "Capital Gains Taxation, Growth, And Fairness," Contemporary Economic Policy, Western Economic Association International, vol. 10(3), pages 16-25, 07.
  15. Feldstein, Martin & Dicks-Mireaux, Louis & Poterba, James, 1983. "The effective tax rate and the pretax rate of return," Journal of Public Economics, Elsevier, vol. 21(2), pages 129-158, July.
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Cited by:
  1. Robert S. Chirinko & Steven M. Fazzari & Andrew P. Meyer, 1998. "What Do Micro Data Reveal About the User Cost Elasticity?: New Evidence on the Responsiveness of Business Capital Formation," Macroeconomics 9805011, EconWPA.
  2. Michael Hudson & Kris Feder, 1997. "Real Estate and the Capital Gains Debate," Economics Working Paper Archive wp_187, Levy Economics Institute.
  3. Michael Hudson & Kris Feder, . "What's Missing from the Capital Gains Debate? Real Estate and Capital Gains Taxation," Economics Public Policy Brief Archive ppb_32, Levy Economics Institute.

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