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on Public Finance |
| By: | Jang-Ting Guo (Department of Economics, University of California Riverside); Alan Krause (Department of Economics, University of York) |
| Abstract: | This paper addresses the question as to whether it is optimal to use separating or pooling nonlinear income taxation, or to use linear income taxation, when the government cannot commit to its future tax policy. We consider both two- period and inÖnite-horizon settings. Under empirically plausible parameter values, separating income taxation is optimal in the two-period model, whereas linear income taxation is optimal when the time horizon is inÖnite. The welfare e§ects of varying the discount rate, the degree of wage inequality, and the population of high-skill workers are also explored. For realistic changes in these parameters, separating income taxation remains optimal in the two-period formulation, and linear income taxation remains optimal in the inÖnite-horizon model. |
| Keywords: | Dynamic Income Taxation; Commitment |
| JEL: | H21 H24 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:ucr:wpaper:201005&r=pub |
| By: | François Gourio; Jianjun Miao |
| Abstract: | We develop a dynamic general equilibrium model to study the impact of the 2003 dividend and capital gains tax cuts. In the model, firms are heterogeneous in productivity and make investment and financing decisions subject to capital adjustment costs, equity issuance costs, and collateral constraints. We show that when the dividend and capital gains tax cuts are unexpected and permanent, dividend payments, equity issuance, and aggregate investment rise immediately. By contrast, when these tax cuts are unexpected and temporary, aggregate investment falls in the short run. This fall allows firms to distribute large dividends initially in response to the temporary dividend tax cut. We also find that the effects of a temporary dividend tax cut are very different from those of a temporary capital gains tax cut. |
| JEL: | D92 E22 E62 G31 H32 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16157&r=pub |