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Capital Gains Tax Cuts, Investment, and Growth

Author

Listed:
  • Steven M. Fazzari

    (The Jerome Levy Economics Institute)

  • Benjamin Herzon

    (The Jerome Levy Economics Institute)

Abstract

Congress currently is considering changes in the capital gains tax, including reducing the rate, indexing the rate to inflation, or some combination of reduction and indexing. These changes have been advocated on the grounds that a cut in the rate will stimulate investment and economic growth. In this working paper, Research Associate Steven M. Fazzari and Benjamin Herzon, a doctoral candidate at Washington University, present a theoretical analysis of the effect of a tax cut on the cost of capital, investment, and output.

Suggested Citation

  • Steven M. Fazzari & Benjamin Herzon, 1998. "Capital Gains Tax Cuts, Investment, and Growth," Macroeconomics 9811006, EconWPA.
  • Handle: RePEc:wpa:wuwpma:9811006
    Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 41; figures: included
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    References listed on IDEAS

    as
    1. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-346, April.
    2. Robert S. Chirinko, 1992. "Business Fixed Investment Spending: A Critical survey of Modeling Strategies, Empirical Results, and Policy Implications," Working Papers 9213, Harris School of Public Policy Studies, University of Chicago.
    3. Feldstein, Martin & Dicks-Mireaux, Louis & Poterba, James, 1983. "The effective tax rate and the pretax rate of return," Journal of Public Economics, Elsevier, vol. 21(2), pages 129-158, July.
    4. Auerbach, Alan J, 1983. "Taxation, Corporate Financial Policy and the Cost of Capital," Journal of Economic Literature, American Economic Association, vol. 21(3), pages 905-940, September.
    5. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
    6. Yolanda K. Henderson, 1986. "Lessons from federal reform of business taxes," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 9-25.
    7. repec:mes:postke:v:16:y:1994:i:3:p:351-370 is not listed on IDEAS
    8. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
    9. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    10. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-357, April.
    11. Jonathan Skinner & Daniel Feenberg, 1990. "The Impact of the 1986 Tax Reform Act on Personal Saving," NBER Working Papers 3257, National Bureau of Economic Research, Inc.
    12. Steven M. Fazzari & Anna Maria Variato, 1994. "Asymmetric Information and Keynesian Theories of Investment," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 16(3), pages 351-369, April.
    13. Fullerton, Don, et al, 1981. "Corporate Tax Integration in the United States: A General Equilibrium Approach," American Economic Review, American Economic Association, vol. 71(4), pages 677-691, September.
    14. Martin Feldstein & Lawrence Summers, 1983. "Inflation and the Taxation of Capital Income in the Corporate Sector," NBER Chapters,in: Inflation, Tax Rules, and Capital Formation, pages 116-152 National Bureau of Economic Research, Inc.
    15. James M. Poterba, 1989. "Venture Capital and Capital Gains Taxation," NBER Chapters,in: Tax Policy and the Economy, Volume 3, pages 47-68 National Bureau of Economic Research, Inc.
    16. Laurence H. Meyer & Joel L. Prakken & Chris P. Varvares, 1993. "Policy Watch: Designing an Effective Investment Tax Credit," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 189-196, Spring.
    17. Joseph J. Minarik, 1992. "Capital Gains Taxation, Growth, And Fairness," Contemporary Economic Policy, Western Economic Association International, vol. 10(3), pages 16-25, July.
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    Cited by:

    1. Robert S. Chirinko & Steven M. Fazzari & Andrew P. Meyer, 1996. "What Do Micro Data Reveal About the User Cost Elasticity?: New Evidence on the Responsiveness of Business Capital Formation," Economics Working Paper Archive wp_175, Levy Economics Institute.
    2. Michael Hudson & Kris Feder, 1997. "Real Estate and the Capital Gains Debate," Economics Working Paper Archive wp_187, Levy Economics Institute.
    3. Norman Schurhoff, 2004. "Capital gains taxes, irreversible investment, and capital structure," 2004 Meeting Papers 592b, Society for Economic Dynamics.
    4. Michael Hudson & Kris Feder, "undated". "What's Missing from the Capital Gains Debate? Real Estate and Capital Gains Taxation," Economics Public Policy Brief Archive ppb_32, Levy Economics Institute.

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    JEL classification:

    • E - Macroeconomics and Monetary Economics

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