CAPITAL TAX REFORMS WITH POLICY UNCERTAINTY

Arpad J Abraham; Pavel  Brendler; Eva Carceles-Poveda

doi:10.1111/iere.12664

CAPITAL TAX REFORMS WITH POLICY UNCERTAINTY

Arpad J Abraham^*, Pavel Brendler, Eva Carceles-Poveda

^*Corresponding author for this work

Research output: Contribution to journal › Article (Academic Journal) › peer-review

1 Citation (Scopus)

Abstract

One important feature of capital tax reforms is the uncertainty regarding their duration. In a standard heterogeneous firm framework with financial frictions, we model policy uncertainty by assuming that reforms may be either repealed or maintained with some probability every period. We illustrate the effects of policy uncertainty in the context of the 2003 Bush tax cuts (2003 Job Growth Tax Relief Reconciliation Act), which lowered shareholder taxes. We show that policy uncertainty regarding dividend and capital gains taxes can explain why the Bush tax cuts had no statistically significant effect on investment, in line with the empirical evidence.

Original language	English
Pages (from-to)	75-116
Number of pages	42
Journal	International Economic Review
Volume	65
Issue number	1
Early online date	2 Sept 2023
DOIs	https://doi.org/10.1111/iere.12664
Publication status	Published - 1 Feb 2024

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Publisher Copyright:
© 2023 The Authors. International Economic Review published by Wiley Periodicals LLC on behalf of the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Keywords

Macroeconomic Policy
Taxation of Capital Income
Policy Uncertainty

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title = "CAPITAL TAX REFORMS WITH POLICY UNCERTAINTY",

abstract = "One important feature of capital tax reforms is the uncertainty regarding their duration. In a standard heterogeneous firm framework with financial frictions, we model policy uncertainty by assuming that reforms may be either repealed or maintained with some probability every period. We illustrate the effects of policy uncertainty in the context of the 2003 Bush tax cuts (2003 Job Growth Tax Relief Reconciliation Act), which lowered shareholder taxes. We show that policy uncertainty regarding dividend and capital gains taxes can explain why the Bush tax cuts had no statistically significant effect on investment, in line with the empirical evidence.",

keywords = "Macroeconomic Policy, Taxation of Capital Income, Policy Uncertainty",

author = "Abraham, {Arpad J} and Pavel Brendler and Eva Carceles-Poveda",

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N2 - One important feature of capital tax reforms is the uncertainty regarding their duration. In a standard heterogeneous firm framework with financial frictions, we model policy uncertainty by assuming that reforms may be either repealed or maintained with some probability every period. We illustrate the effects of policy uncertainty in the context of the 2003 Bush tax cuts (2003 Job Growth Tax Relief Reconciliation Act), which lowered shareholder taxes. We show that policy uncertainty regarding dividend and capital gains taxes can explain why the Bush tax cuts had no statistically significant effect on investment, in line with the empirical evidence.

AB - One important feature of capital tax reforms is the uncertainty regarding their duration. In a standard heterogeneous firm framework with financial frictions, we model policy uncertainty by assuming that reforms may be either repealed or maintained with some probability every period. We illustrate the effects of policy uncertainty in the context of the 2003 Bush tax cuts (2003 Job Growth Tax Relief Reconciliation Act), which lowered shareholder taxes. We show that policy uncertainty regarding dividend and capital gains taxes can explain why the Bush tax cuts had no statistically significant effect on investment, in line with the empirical evidence.

KW - Macroeconomic Policy

KW - Taxation of Capital Income

KW - Policy Uncertainty

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JO - International Economic Review

JF - International Economic Review

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ER -

CAPITAL TAX REFORMS WITH POLICY UNCERTAINTY

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