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Capital Tax Incidence: Fisherian Impressions from the Time Series

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  • Casey B. Mulligan

Abstract

This paper accepts for the sake of argument the hypothesis that much of the time series correlation between tax and profit rates is spurious, and shows how nonetheless time series for profit rates, tax rates, and consumption can be organized, compared and interpreted using Fisher's (1930) theory of consumption in order to understand the incidence of capital taxes. Capital taxation is associated with a wedge between anticipated aggregate consumption growth and capital rental rates, suggesting that in one way or another capital owner behavior adjusts in the direction needed for some passing' of the capital tax. Conversely, most of the medium and low frequency deviations between anticipated aggregate consumption growth and capital rental rates are associated with capital taxation, as implied by aggregate time-separable Fisherian consumption theories in which time preference, non-tax capital market distortions, aggregation biases, and other determinants of aggregate consumption growth vary little over time.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9916.

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Date of creation: Aug 2003
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Handle: RePEc:nbr:nberwo:9916

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  1. Robert J. Barro & Chaipat Sahasakul, 1983. "Measuring the Average Marginal Tax Rate from the Individual Income Tax," NBER Working Papers 1060, National Bureau of Economic Research, Inc.
  2. Casey B. Mulligan, 2002. "Capital Tax Incidence: First Impressions from the Time Series," NBER Working Papers 9374, National Bureau of Economic Research, Inc.
  3. Martin Feldstein & James M. Poterba & Louis Dicks-Mireaux, 1981. "The Effective Tax Rate and the Pretax Rate of Return," NBER Working Papers 0740, National Bureau of Economic Research, Inc.
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  5. Casey B. Mulligan, 2002. "A Dual Method of Empirically Evaluating Dynamic Competitive Equilibrium Models with Market Distortions, Applied to the Great Depression & World War II," NBER Working Papers 8775, National Bureau of Economic Research, Inc.
  6. Nancy L. Stokey & Sergio Rebelo, 1993. "Growth Effects of Flat-Rate Taxes," NBER Working Papers 4426, National Bureau of Economic Research, Inc.
  7. Casey B. Mulligan, 2002. "Capital, Interest, and Aggregate Intertemporal Substitution," NBER Working Papers 9373, National Bureau of Economic Research, Inc.
  8. John G. Cragg & Arnold C. Harberger & Peter Mieszkowski, 1967. "Empirical Evidence on the Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 75, pages 811.
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Cited by:
  1. Jones, Larry E. & Manuelli, Rodolfo E., 2005. "Neoclassical Models of Endogenous Growth: The Effects of Fiscal Policy, Innovation and Fluctuations," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 1, pages 13-65 Elsevier.
  2. Casey Mulligan, 2004. "What Do Aggregate Consumption Euler Equations Say About the Capital-Income Tax Burden?," American Economic Review, American Economic Association, vol. 94(2), pages 166-170, May.
  3. Lu, Shu-Shiuan, 2013. "The role of capital market efficiency in long-term growth: A quantitative exploration," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 161-174.
  4. Casey B. Mulligan, 2004. "Robust Aggregate Implications of Stochastic Discount Factor Volatility," NBER Working Papers 10210, National Bureau of Economic Research, Inc.

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