CGE Models and Capital Income Tax Reforms: The Case of a Dual Income Tax for Germany

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Springer Science & Business Media, Aug 28, 2007 - Business & Economics - 168 pages
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The book suggests a novel way how the effects of tax reforms especially in the field of capital income taxation can be measured by means of dynamic computable general equilibrium (CGE) models. Using a model calibrated to the German economy, the author evaluates and quantifies the effects of introducing a Dual Income Tax (DIT) in Germany. This tax reform is a currently hotly debated topic in Germany and has been suggested both by the German Council of Economic Advisors (GCEA) and by Prof. Hans-Werner Sinn. Thus, the book is of great interest not only for the academic but also for the business world and politics.
 

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Contents

Introduction
1
Why Does Germany Need a Reform of Capital Income Taxation?
5
22 The German Tax Reform 2000
7
23 Theoretical and Empirical Arguments for Lower Capital Income Taxation
10
24 Germanys Declining Economy and the Increasing Tax Competition in the EU
11
25 The NonTransparent and Complicated German Tax System
16
26 Decreasing Revenues From Corporate Taxes
19
27 Summary
21
426 Rest of the World
91
Simulation Results
93
511 Production Technology Parameters
94
512 Macroeconomic Data
96
52 The Marginal Excess Burden
97
53 Implementing a DIT as Suggested by the GCEA 2003
98
531 Partial Analysis of the Effects of Each Individual Tax Rate Change
100
532 Steady State Comparisons of the Overall Reform Package
105

The Dual Income Tax
23
32 The Case for a Dual Income Tax
25
Efficiency and Equity
26
322 Administrative Simplicity
33
323 Revenue Aspects
34
33 The Experience of Nordic Countries
35
331 Denmark
39
333 Norway
40
334 Sweden
42
34 Problems Related to the DIT Implementation
45
35 Concrete Proposals for Germany
47
352 The DIT Proposal of Sinn 2003a
48
36 Summary
51
Appendix A Reform Proposal for Switzerland
53
The Model
55
42 The Model
59
422 Stylized Analysis of Tax Policy and Effective Marginal Tax Rates
76
423 Households and General Equilibrium
78
424 General Macroeconomic Equilibrium
86
425 Welfare Analysis and the Marginal Excess Burden of Taxes
88
533 Transition Paths
112
54 Implementing a DIT as Suggested by Sinn 2003a
119
541 Steady State Comparisons
120
542 Transition Paths
125
55 The Two Proposals Compared
129
56 Sensitivity Analysis
133
Conclusion
137
Appendix A
140
Appendix B
143
Appendix B2 Intertemporal Optimization of Domestic Households
145
Appendix B3 Walras Law
147
Appendix B4 Savings Investment Identity
150
Appendix C Functional Forms
153
Appendix C2 Factor Demands
155
Appendix C3 Adjustment Cost Function
156
Appendix C4 Agency Cost Function
157
Appendix D Computational Strategy
159
References
160
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