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Gradual Reforms of Capital Income Taxation

Peter Howitt and Hans-Werner Sinn
The American Economic Review
Vol. 79, No. 1 (Mar., 1989), pp. 106-124
Stable URL: http://www.jstor.org/stable/1804777
Page Count: 19
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Gradual Reforms of Capital Income Taxation
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Abstract

This paper analyzes the intertemporal allocation effects of anticipated tax-rate changes, reconsidering the recommendations of the Meade Committee in a perfect foresight general equilibrium model of economic growth. We show that the R-base (or consumption) tax can be more distortionary than an income tax and that a revenue-neutral integration of corporate and personal taxation may lower social welfare. Moreover, we argue that a dividend tax dominates the R-base tax because it places its distortions on the financial rather than on the real side of the economy.

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