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The Growth and Welfare Effects of Deficit-Financed Dividend Tax Cuts

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  • PIETRO F. PERETTO

Abstract

I develop a tractable growth model that allows me to study analytically transition dynamics and welfare in response to a deficit‐financed cut of the tax rate on distributed dividends. I then carry out a quantitative assessment of the Job Growth and Taxpayer Relief Reconciliation Act (JGTRRA) of 2003. I find that the Act produces lower steady‐state growth despite the fact that the economy’s saving and employment ratios rise. Most importantly, it produces a welfare loss of 19.34% of annual consumption per capita—a substantial effect driven by the fact that the steady‐state growth rate falls from 2% to 1.08%.
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  • Pietro F. Peretto, 2011. "The Growth and Welfare Effects of Deficit-Financed Dividend Tax Cuts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(5), pages 835-869, August.
    • Handle: RePEc:mcb:jmoncb:v:43:y:2011:i:5:p:835-869
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    1. Zeng, Jinli & Zhang, Jie, 2002. "Long-run growth effects of taxation in a non-scale growth model with innovation," Economics Letters, Elsevier, vol. 75(3), pages 391-403, May.
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    3. Pietro F. Peretto, 2007. "Schumpeterian Growth with Productive Public Spending and Distortionary Taxation," Review of Development Economics, Wiley Blackwell, vol. 11(4), pages 699-722, November.
    4. Peretto, Pietro F., 2007. "Corporate taxes, growth and welfare in a Schumpeterian economy," Journal of Economic Theory, Elsevier, vol. 137(1), pages 353-382, November.
    5. Hulya Ulku, 2007. "R&D, innovation, and growth: evidence from four manufacturing sectors in OECD countries," Oxford Economic Papers, Oxford University Press, vol. 59(3), pages 513-535, July.
    6. Christopher Laincz & Pietro Peretto, 2006. "Scale effects in endogenous growth theory: an error of aggregation not specification," Journal of Economic Growth, Springer, vol. 11(3), pages 263-288, September.
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    12. Peretto, Pietro F, 1998. "Technological Change and Population Growth," Journal of Economic Growth, Springer, vol. 3(4), pages 283-311, December.
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