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A Growth Oriented Dual Income Tax

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 2 to 3 percent of GDP in the long run, depending on the specific scenario. Given the slow nature of capital accumulation, it also imposes considerable costs in the short run. We also consider a tax smoothing scenario to offset the intergenerationally redistributive effects.
   
type journal paper
   
keywords tax reform, investment, financial structure, growth.
   
language English
kind of paper journal article
date of appearance 1-2-2007
journal International Tax and Public Finance
publisher Springer
ISSN 0927-5940
volume of journal 14
number of issue 2
page(s) 191-221
review not reviewed
   
citation Dietz, M., & Keuschnigg, C. (2007). A Growth Oriented Dual Income Tax. International Tax and Public Finance, 14(2), 191-221.