A growth oriented dual income tax |
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Authors: | Christian Keuschnigg Martin D Dietz |
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Institution: | (1) University of St. Gallen (IFF-HSG), CEPR and CESifo, Varnbüelstrasse 19, CH 9000 St. Gallen, Switzerland |
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Abstract: | This paper proposes a growth oriented dual income tax by combining an allowance for corporate equity with a broadly defined
flat tax on personal capital income. Revenue losses are compensated by an increase in the value added tax. The paper demonstrates
the neutrality properties of the reform with respect to investment, firm financial decisions and organizational choice. Tax
rates are chosen to prevent income shifting from labor to capital income. The reform decisively strengthens investment of
domestically owned firms as well as home and foreign based multinationals and boosts savings. Simulations with a calibrated
growth model for Switzerland indicate that the reform could add between 4 to 5 percent of GNP in the long-run, depending on
the specific scenario. Given the slow nature of capital accumulation, it imposes considerable costs in the short-run. We consider
a tax smoothing scenario to offset the intergenerationally redistributive effects.
JEL Classification: D58, D92, E62, G32, H25 |
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Keywords: | Tax reform Investment Financial structure Growth |
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