Pré-Publication, Document De Travail Année : 2021

Budget-neutral capital tax cuts

Résumé

We revisit the canonical policy of eliminating capital taxation by increasing labor taxation in a endogenous-labor, heterogeneous-agent model with income and wealth heterogeneity, when the government is subject to a strict (per-period) balancedbudget constraint. By contrast with its non-budget neutral equivalent-associated with a constant tax rate over time and a permanent increase in the level of public debt-we show that the obtained endogenous path for the labor tax rate is sharply increasing in the initial period and decreasing over time. The policy then generates a deeper recession in the short-run and a greater expansion in the long-run, as well as a smaller decline in wealth inequality associated with a reduced incentive to save for precautionary motives. Overall, the policy still generates significant losses in average welfare.

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A comme version hal-04000531 Article Frédéric Dufourt, Lisa Kerdelhué, Océane Piétri. Budget-Neutral Capital Tax Cuts. Annals of Economics and Statistics, 2022, 146, pp.93-122. ⟨10.2307/48674140⟩. ⟨hal-04000531⟩

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halshs-03424147 , version 1 (10-11-2021)

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Frédéric Dufourt, Lisa Kerdelhué, Océane Piétri. Budget-neutral capital tax cuts. 2021. ⟨halshs-03424147⟩
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