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Taxation, growth and welfare: Dynamic effects of Estonia’s 2000 income tax act

  • Michael Funke

    (Hamburg University, Department of Economics)

  • Holger Strulik

    (Hamburg University, Department of Economics)

This paper analyses the long-run effects of Estonia’s 2000 Income Tax Act with a dynamic general equilibrium model. Specifically, we consider the impact of the shift from an imputation system to one where companies only pay taxes on distributed profits. Balanced growth paths, transitional dynamics and welfare costs are computed. Our results indicate that the 2000 Income Tax Act leads to higher per capita income and investment, but lower welfare. A sensitivity analysis shows the results are rather robust.

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Paper provided by EconWPA in its series Macroeconomics with number 0401009.

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Length: 26 pages
Date of creation: 30 Jan 2004
Date of revision:
Handle: RePEc:wpa:wuwpma:0401009
Note: Type of Document - pdf; prepared on Win98; pages: 26
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  1. Kim, Se-Jik, 1998. "Growth effect of taxes in an endogenous growth model: to what extent do taxes affect economic growth?," Journal of Economic Dynamics and Control, Elsevier, vol. 23(1), pages 125-158, September.
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  13. Kenneth L. Judd, 1984. "The Welfare Cost of Factor Taxation in a Perfect Foresight Model," Discussion Papers 643, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. Strulik, Holger, 2003. "Capital tax reform, corporate finance, and economic growth and welfare," Journal of Economic Dynamics and Control, Elsevier, vol. 28(3), pages 595-615, December.
  15. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
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  19. Robert E. Lucas Jr., 2003. "Macroeconomic Priorities," American Economic Review, American Economic Association, vol. 93(1), pages 1-14, March.
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