Macroeconomic effects of capital tax rate changes

Arbeitspapier

We study aggregate, distributional, and welfare effects of a permanent reduction in the capital tax rate in a dynamic equilibrium model with capital-skill complementarity. Such a tax reform leads to expansionary long-run aggregate effects, but is coupled with an increase in the skill premium. Moreover, the expansionary long-run aggregate effects are smaller when distortionary labor or consumption tax rates have to increase to finance the capital tax rate cut. An extension to a model with heterogeneous households shows that consumption inequality increases in the long-run. We study transition dynamics and show that short-run effects depend critically on the monetary policy response: whether the central bank allows inflation to directly facilitate government debt stabilization and how inertially it raises interest rates. Finally, we contrast the long-term aggregate welfare gains with short-term losses, as well as in the model with heterogeneous households, show that welfare gains for the skilled go together with welfare losses for the unskilled.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CESifo Working Paper ; No. 7630

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Fiscal Policy ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy ; Monetary Policy ; Central Banks and Their Policies ; Price Level; Inflation; Deflation
• Thema: capital tax rate ; permanent change in the tax rate ; capital-skill complementarity ; skill premium ; inequality ; transition dynamics ; monetary policy response

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Bhattarai, Saroj ; Lee, Jae Won ; Park, Woong Yong ; Yang, Choongryul
• Ereignis: Veröffentlichung
• (wer): Center for Economic Studies and ifo Institute (CESifo)
• (wo): Munich
• (wann): 2019

Weitere Informationen

• Handle: http://hdl.handle.net/10419/198990
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ