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Political Economy in a Contestable Democracy: The Case of Dividend Taxation

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Author Info

  • Joseph E. Stiglitz

    (Columbia University)

  • Anton Korinek

    (University of Maryland)

Abstract

We show that aggregate investment is generally higher under the party that sets higher tax rates, since private firms pay out lower dividends and carry more working capital, leading to higher investment. Furthermore, both parties bias their tax rates upwards (beyond the rates that they would set if they were in power permanently) in an effort to increase investment under their regime. We also discuss how the distortion could be addressed through cooperation between the two parties.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 760.

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Date of creation: 2008
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Handle: RePEc:red:sed008:760

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Web page: http://www.EconomicDynamics.org/society.htm
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Cited by:
  1. Korinek, Anton & Stiglitz, Joseph E., 2009. "Dividend taxation and intertemporal tax arbitrage," Journal of Public Economics, Elsevier, Elsevier, vol. 93(1-2), pages 142-159, February.
  2. Nunes, Ricardo, 2008. "Delegation and Loose Commitment," MPRA Paper 11555, University Library of Munich, Germany.

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