Capital income taxation in a growing open economy

TY - JOUR

T1 - Capital income taxation in a growing open economy

AU - Nielsen, Søren Bo

AU - Sørensen, Peter Birch

PY - 1991

Y1 - 1991

N2 - The paper studies the dynamic macroeconomic effects of various forms of capital income taxation in a model of a small open economy with perfect mobility of financial capital and intertemporal optimization on the part of households and firms. One of the noteworthy results is that the introduction of a (low) corporate income tax will not affect consumption in the long run, but will simply lead to a replacement of shares by foreign financial assets in household portfolios. It is also found that an anticipated investment tax credit can have and that an anticipated dividend tax will have contractionary effects on investment before they are introduced. Moreover, it is shown that while an unanticipated dividend tax is neutral with respect to investment, it will have real effects on consumption and net foreign assets in a growing economy

AB - The paper studies the dynamic macroeconomic effects of various forms of capital income taxation in a model of a small open economy with perfect mobility of financial capital and intertemporal optimization on the part of households and firms. One of the noteworthy results is that the introduction of a (low) corporate income tax will not affect consumption in the long run, but will simply lead to a replacement of shares by foreign financial assets in household portfolios. It is also found that an anticipated investment tax credit can have and that an anticipated dividend tax will have contractionary effects on investment before they are introduced. Moreover, it is shown that while an unanticipated dividend tax is neutral with respect to investment, it will have real effects on consumption and net foreign assets in a growing economy

U2 - 10.1016/0014-2921(91)90110-5

DO - 10.1016/0014-2921(91)90110-5

M3 - Journal article

SN - 0014-2921

VL - 35

SP - 179

EP - 197

JO - European Economic Review

JF - European Economic Review

IS - 1

ER -