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The Growth and Welfare Effects of Deficit‐Financed Dividend Tax Cuts
Author(s) -
PERETTO PIETRO F.
Publication year - 2011
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2011.00399.x
Subject(s) - taxpayer , economics , per capita , welfare , consumption (sociology) , dividend , growth model , slow growth , tax rate , tax reform , growth rate , monetary economics , labour economics , macroeconomics , public economics , market economy , finance , population , social science , demography , geometry , mathematics , sociology
I develop a tractable growth model that allows me to study analytically transition dynamics and welfare in response to a deficit‐financed cut of the tax rate on distributed dividends. I then carry out a quantitative assessment of the Job Growth and Taxpayer Relief Reconciliation Act (JGTRRA) of 2003. I find that the Act produces lower steady‐state growth despite the fact that the economy’s saving and employment ratios rise . Most importantly, it produces a welfare loss of 19.34% of annual consumption per capita—a substantial effect driven by the fact that the steady‐state growth rate falls from 2% to 1.08%.