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Capital Tax Incidence: Fisherian Impressions from the Time Series

  • Casey B. Mulligan

This paper accepts for the sake of argument the hypothesis that much of the time series correlation between tax and profit rates is spurious, and shows how nonetheless time series for profit rates, tax rates, and consumption can be organized, compared and interpreted using Fisher's (1930) theory of consumption in order to understand the incidence of capital taxes. Capital taxation is associated with a wedge between anticipated aggregate consumption growth and capital rental rates, suggesting that in one way or another capital owner behavior adjusts in the direction needed for some passing' of the capital tax. Conversely, most of the medium and low frequency deviations between anticipated aggregate consumption growth and capital rental rates are associated with capital taxation, as implied by aggregate time-separable Fisherian consumption theories in which time preference, non-tax capital market distortions, aggregation biases, and other determinants of aggregate consumption growth vary little over time.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9916.

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Date of creation: Aug 2003
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Handle: RePEc:nbr:nberwo:9916
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  1. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  2. Stephenson, E. Frank, 1998. "Average marginal tax rates revisited," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 389-409, April.
  3. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
  4. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215.
  5. Nancy L. Stokey & Sergio Rebelo, 1993. "Growth Effects of Flat-Rate Taxes," NBER Working Papers 4426, National Bureau of Economic Research, Inc.
  6. Barro, Robert J. & Sahasakul, Chaipat, 1983. "Measuring the Average Marginal Tax Rate from the Individual Income Tax," Scholarly Articles 3451293, Harvard University Department of Economics.
  7. Poterba, James M., 1996. "Retail Price Reactions to Changes in State and Local Sales Taxes," National Tax Journal, National Tax Association, vol. 49(2), pages 165-76, June.
  8. Robert E. Hall, 1981. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
  9. Martin Feldstein & James M. Poterba & Louis Dicks-Mireaux, 1981. "The Effective Tax Rate and the Pretax Rate of Return," NBER Working Papers 0740, National Bureau of Economic Research, Inc.
  10. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
  11. repec:ucp:bknber:9780226304557 is not listed on IDEAS
  12. William N. Evans & Jeanne S. Ringel & Diana Stech, 1999. "Tobacco Taxes and Public Policy to Discourage Smoking," NBER Chapters, in: Tax Policy and the Economy, Volume 13, pages 1-56 National Bureau of Economic Research, Inc.
  13. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  14. Ellen R. McGrattan & Edward C. Prescott, 2001. "Taxes, Regulations, and Asset Prices," NBER Working Papers 8623, National Bureau of Economic Research, Inc.
  15. Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1994. "A Reconsideration of Investment Behavior Using Tax Reforms as Natural Experiments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 1-74.
  16. Casey B. Mulligan, 2002. "Capital Tax Incidence: First Impressions from the Time Series," NBER Working Papers 9374, National Bureau of Economic Research, Inc.
  17. Besley, Timothy J. & Rosen, Harvey S., 1999. "Sales Taxes and Prices: An Empirical Analysis," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 157-78, June.
  18. Casey B. Mulligan, 2002. "Capital, Interest, and Aggregate Intertemporal Substitution," NBER Working Papers 9373, National Bureau of Economic Research, Inc.
  19. Casey B. Mulligan, 2002. "A Dual Method of Empirically Evaluating Dynamic Competitive Equilibrium Models with Market Distortions, Applied to the Great Depression & World War II," NBER Working Papers 8775, National Bureau of Economic Research, Inc.
  20. John G. Cragg & Arnold C. Harberger & Peter Mieszkowski, 1967. "Empirical Evidence on the Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 75, pages 811.
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