The Impact of Changes in Expected Marginal Tax Rates on Nominal Interest Rates
This paper provides a structural analysis of the principal allocative and aggre¬gate effects of changes in marginal tax rates on nominal interest rates. Over the sample period the sensitivity of the nominal interest rate to changes in the marginal tax rate rises and falls with the nominal interest rate, suggesting that during periods of rising nominal interest rates, higher marginal tax rates may not help to reduce the government deficit. However, as nominal interest rates fall, the aggregate effects of higher marginal tax rates become relatively larger than the allocative effects, suggesting that nominal interest rates become less sensitive to changes in marginal tax rates and higher marginal tax rates may help to reduce the government deficit.
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Volume (Year): 50 (1997)
Issue (Month): 3 ()
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