Resource title

A growth oriented dual income tax

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Resource description

This paper proposes a growth-oriented dual-income tax by combining an allowance for corporate equity with a broadly defined flat tax on personal capital income. Revenue losses are compensated by an increase in the value added tax. The paper demonstrates the neutrality properties of the reform with respect to investment, firm financial decisions and organizational choice. Tax rates are chosen to prevent income shifting from labor to capital income. The reform decisively strengthens investment of domestically owned firms as well as home and foreign based multinationals and boosts savings. Simulations with a calibrated growth model for Switzerland indicate that the reform could add between 2 to 3 percent of GDP in the long run, depending on the specific scenario. Given the slow nature of capital accumulation, it also imposes considerable costs in the short run. We also consider a tax smoothing scenario to offset the intergenerationally redistributive effects.

Resource author

Christian Keuschnigg, Martin D. Dietz

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/18977

Resource license

Adapt according to the presented license agreement and reference the original author.