By Doina Maria Radulescu
From the reviews:
“The e-book proposes an method for the size of the results of tax reforms mostly within the box of capital source of revenue taxation. … The ebook is dependent in 6 chapters. … meant to an viewers interested by monetary and taxation matters that's whilst rather established to the thoughts of equilibrium models.” (Vangelis Grigoroudis, Zentralblatt MATH, Vol. 1170, 2009)
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Additional info for CGE Models and Capital Income Tax Reforms: The Case of a Dual Income Tax for Germany
While the tax reform reduced the tax burden of non-corporate ﬁrms, the eﬀect on corporate ﬁrms is two-fold. Corporations which ﬁnance new investment out of retained earnings are at an advantage, followed by non-corporate ﬁrms, and ﬁnally by corporations using new share issues as a marginal source of ﬁnance. In general, the tax rate diﬀerential between non-corporate and corporate ﬁrms has widened and no neutrality is attained with regard to the choice of legal form. 6 percentage points in 2005. One of the main reasons for the need to reform the German tax system is the country’s poor economic performance.
32 3 The Dual Income Tax Fig. 1 depicts the eﬀect of levying a corporate or a capital income tax in a small open economy with a current account surplus (since saving S 0 is larger than investment I 0 ). The equilibrium level of investment is determined by the intersection of the downward sloping marginal product of capital M P C curve, which illustrates the relationship between the demand for capital and the market interest rate r. The equilibrium level of saving is determined by the equality between the marginal rate of time preference M RT P and the market rate of interest.
The reduction in labor taxes has a positive eﬀect on the labor cost but total labor demand is unlikely to change. This is due to the fact that the reduced capital stock (stemming from higher capital gains taxes) leads to a reduction in marginal labor productivity which counteracts the eﬀect of lower labor costs. Although each individual reform component does have a signiﬁcant eﬀect on the economy, they tend to act in opposite directions, such that the overall welfare eﬀect of the reform is moderate.