Capital income taxation and resource allocation
This monograph investigates the intersectoral, international, and intertemporal allocation effects of alternative systems of capital income taxation characterized by different degrees of integration between corporate and personal taxation, depreciation rules, provisions for interest deductibility, and the like. The systems studied include those of the OECD countries as well as proposed systems advocated by various authors and tax committees. In contrast to the ``Harberger literature'', the book provides a microfoundation for the analysis of tax distortions. It is not assumed that the various components of capital income taxation can be lumped together as an ``effective tax rate'' that captures all the information relevant for assessing the distortions. Instead, the allocative roles of these components are explicitly derived from the households' and firms' optimization problems. Much emphasis is placed on the tax-induced interaction between the firms' real and financial decisions, and it is argued that this interaction fundamentally changes the nature of many of the tax distortions traditionally claimed for the real economy, sometimes even reversing their direction. All allocative results are derived from market equilibrium models. The distortion in the process of capital accumulation, for example, is studied in a perfect foresight intertemporal general equilibrium model with infinitely lived firms and households which is a decentralized version of the neoclassical model of optimal economic growth. Although basically theoretical, the book has a strong policy orientation and comments on a number of issues that are of current political concern. Particular attention is paid to the 1981 and 1986 U.S. tax reforms. It is argued that the 1981 reform was a major cause of the disturbances in international capital markets which troubled the world economy at the beginning of the eighties and that the 1986 policy of `tax cut cum base broadening' will stimulate economic growth, but induce capital flight from the United States into the rest of the world.
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Introduction to the Theory of Intertemporal Allocation
Fisher Solow and the General Intertemporal Equilibrium
13 other sections not shown
accelerated depreciation accounting profits allocation analysis assets assumed assumption Brown tax capital gains tax capital income taxation capital market capital stock Chapter classical system condition constraints consumption corporate tax rate countries debt financing debt interest decision problem deductible distortions distributed profits dividend tax double taxation economic growth Equation equity capital equity finance equity-asset ratio financial decisions financial instruments Harberger implies income tax rate increase interest income intertemporal equilibrium intertemporal general equilibrium investment neutrality issues of shares laissez-faire loss-offset marginal product marginal source market equilibrium market rate market value Miller equilibrium OECD optimal personal income tax personal tax rate preference present value problem product of capital rate of interest reduces retained profits retentions Section sector source of finance steady-state stock of capital substitution effect systems of capital tax base tax burden tax factor tax reform tax system taxation of dividends taxation paradox true economic depreciation Type value-added tax