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Political Economy in a Contestable Democracy: The Case of Dividend Taxation

  • Joseph E. Stiglitz

    (Columbia University)

  • Anton Korinek

    (University of Maryland)

We show that aggregate investment is generally higher under the party that sets higher tax rates, since private firms pay out lower dividends and carry more working capital, leading to higher investment. Furthermore, both parties bias their tax rates upwards (beyond the rates that they would set if they were in power permanently) in an effort to increase investment under their regime. We also discuss how the distortion could be addressed through cooperation between the two parties.

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Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 760.

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Date of creation: 2008
Date of revision:
Handle: RePEc:red:sed008:760
Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
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