Revisiting the capital tax ambiguity result

Selim, S. 2011. Revisiting the capital tax ambiguity result. Quantitative and Qualitative Analysis in Social Sciences. 5 (1), pp. 37-48.

TitleRevisiting the capital tax ambiguity result
AuthorsSelim, S.
Abstract

We provide a welfare based interpretation of the capital tax ambiguity result (due to Guo and Lansing, 1999). We show that the sign ambiguity of optimal capital tax rate in an imperfectly competitive economy is mainly due to the welfare cost of investment. The substitution and income effects of profit seeking investment reinforce each other which creates a deadweight loss in welfare. Investors cannot perceive this effect and never invest at the right level. This loss is perceived only by the government which motivates capital taxation.

JournalQuantitative and Qualitative Analysis in Social Sciences
Journal citation5 (1), pp. 37-48
ISSN1752-8925
Year2011
Web address (URL)http://www.qass.org.uk/2011/paper3.pdf
Publication dates
Published2011

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