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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NBER Working Papers
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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.
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