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On the consequences of eliminating capital tax differentials
Author(s) -
Slavík Ctirad,
Yazici Hakki
Publication year - 2019
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12370
Subject(s) - economics , complementarity (molecular biology) , capital (architecture) , welfare , capital gains tax , labour economics , monetary economics , tax reform , tax credit , microeconomics , indirect tax , public economics , market economy , archaeology , genetics , biology , history
In the United States, different types of capital are effectively taxed at different rates. In particular, effective tax rates on structures have been higher than those on equipments. Eliminating these differentials has been the subject of policy debates. This paper analyzes the consequences of eliminating capital tax differentials using an incomplete markets model with equipment–skill complementarity. The reform improves productive efficiency by eliminating distortions in capital accumulation. It also increases the degree of equality by reducing the skill premium. The reform increases average welfare by approximately 0.11%.