Taxation, Growth and Welfare: Dynamic Effects of Estonia´s 2000 Income Tax Act
This paper analyses the long run effects of the 2000 Income Tax Act in Estonia in a dynamic equilibrium model. It studiesthe impact of the shift from an imputation system to a system in which companies pay taxes only with respect to distributed profits.Balanced growth paths, transitional dynamics and welfare costs are computed. We show that the 2000 Estonian Income Tax Act leads to higher per capita income and investment but lower welfare. A sensitivity analysis shows that the results are rather robust.
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