Budget-neutral capital tax cuts
Abstract
We revisit the canonical policy of eliminating capital taxation by increasing labor taxation in a endogenous-labor, heterogeneous-agent model with income and wealth heterogeneity, when the government is subject to a strict (per-period) balancedbudget constraint. By contrast with its non-budget neutral equivalent-associated with a constant tax rate over time and a permanent increase in the level of public debt-we show that the obtained endogenous path for the labor tax rate is sharply increasing in the initial period and decreasing over time. The policy then generates a deeper recession in the short-run and a greater expansion in the long-run, as well as a smaller decline in wealth inequality associated with a reduced incentive to save for precautionary motives. Overall, the policy still generates significant losses in average welfare.
Themen
Fiscal Policy, Capital Tax Cut, Tax Composition, Heterogeneous Agents, Wealth Redistribution, JEL: E - Macroeconomics and Monetary Economics/E.E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy/E.E2.E21 - Consumption • Saving • Wealth, JEL: E - Macroeconomics and Monetary Economics/E.E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook, JEL: D - Microeconomics/D.D3 - Distribution/D.D3.D31 - Personal Income, Wealth, and Their Distributions, JEL: H - Public Economics/H.H2 - Taxation, Subsidies, and Revenue/H.H2.H23 - Externalities • Redistributive Effects • Environmental Taxes and Subsidies, [SHS.ECO]Humanities and Social Sciences/Economics and Finance, http://semantics.gr/authorities/SSH-LCSH/sh85019929, Capital assets, capital, Capitale, kapital, Betriebsmittel, Κεφάλαιο, Immobilisations, kapitał, Fixed assets, http://semantics.gr/authorities/SSH-LCSH/sh85064759, Redditi, Erlös, Fortunes, Εισόδημα, Ingresos, Family income, Income, Renda, Dochód, Revenu, Prihod, Personal income, Household income, Rendimentos, http://semantics.gr/authorities/SSH-LCSH/sh85145828, Πλούτος
Sprachen
Englisch
Verlag
HAL CCSD
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