Inflation, real interest tax wedges, and capital formation
William G. Dewald, director of research for the St. Louis Fed, examines how inflation magnifies the distorting effects of taxation when the tax treatment of interest income and expense is not fully indexed to inflation. The distortion involves a real interest tax wedge which is the difference between the real before-tax interest rate that influences fully taxed investors and the real after-tax interest rate that influences savers. Reducing the real tax wedge by eliminating inflation or indexing would stimulate private saving and nonresidential investment but decrease tax receipts and the tax deductions that subsidize home ownership.
Volume (Year): (1998)
Issue (Month): Jan ()
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References listed on IDEAS
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- William G. Dewald, 1986. "Government Deficits in a Generalized Fisherian Credit Market: Theory with an Application to Indexing Interest Taxation (DÃ©ficits publics dans le contexte d'un marchÃ© du crÃ©dit dÃ©crit par un modÃ¨l," IMF Staff Papers, Palgrave Macmillan, vol. 33(2), pages 243-275, June.
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- Alan J. Auerbach, 1982.
"Taxation, Corporate Financial Policy and the Cost of Capital,"
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1026, National Bureau of Economic Research, Inc.
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- Steven M. Fazzari & Benjamin Herzon, . "Capital Gains Taxes and Economic Growth, Effects of a Capital Gains Tax Cut on the Investment Behavior of Firms," Economics Public Policy Brief Archive ppb_25, Levy Economics Institute.
- Mervyn A. King & Don Fullerton, 1984. "West Germany," NBER Chapters, in: The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany, pages 149-192 National Bureau of Economic Research, Inc.
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