The Economic Recovery Tax Act of 1981 reduced personal marginal tax rates and provided significant business tax breaks. Subsequent changes through 1985 cut back on business allowances. The Tax Reform Act of 1986 reduced marginal rates again, but added significantly to business taxes. Was there any unifying theme to these tax changes, or do they represent frequent changes in course for tax policy? This paper uses a general equilibrium model capable of second- best analysis to investigate the net effects on efficiency of each of these changes in capital income taxation. Under the new view that dividend taxes are unimportant investment disincentives, there is no set of other parameters in the model for which these changes generate improvements in efficiency. Under the old view that dividend taxes are important, however, these changes all increase efficiency for a wide range of values for other parameters in the model.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
2593.
Length: Date of creation: Aug 1989 Date of revision: Publication status: published as National Tax Journal, Vol. 42, No. 1, pp 1-13, (March 1989). Handle: RePEc:nbr:nberwo:2593
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