The Growth and Welfare Effects of Deficit‐Financed Dividend Tax Cuts |
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Authors: | PIETRO F PERETTO |
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Institution: | Pietro F. Peretto is in the Department of Economics, Duke University, Durham, NC 27708 (E‐mail: peretto@econ.duke.edu). |
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Abstract: | I develop a tractable growth model that allows me to study analytically transition dynamics and welfare in response to a deficit‐financed cut of the tax rate on distributed dividends. I then carry out a quantitative assessment of the Job Growth and Taxpayer Relief Reconciliation Act (JGTRRA) of 2003. I find that the Act produces lower steady‐state growth despite the fact that the economy’s saving and employment ratios rise. Most importantly, it produces a welfare loss of 19.34% of annual consumption per capita—a substantial effect driven by the fact that the steady‐state growth rate falls from 2% to 1.08%. |
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Keywords: | E10 L16 O31 O40 endogenous growth market structure dividends corporate taxation |
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