A Growth Oriented Dual Income Tax
Journal
International Tax and Public Finance
ISSN
0927-5940
Type
journal article
Date Issued
2007-02-01
Author(s)
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.
Language
English
Keywords
tax reform
investment
financial structure
growth.
HSG Classification
not classified
Refereed
No
Publisher
Springer
Publisher place
New York
Volume
14
Number
2
Start page
191
End page
221
Pages
31
Subject(s)
Eprints ID
22037
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ITAX07DietzKeuschnigg.pdf
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Format
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