A Growth Oriented Dual Income Tax

Martin Dietz and Christian Keuschnigg

No 1513, CESifo Working Paper Series from CESifo

Abstract: 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.

Keywords: tax reform; investment; financial structure; growth (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-acc, nep-fin, nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Journal Article: A growth oriented dual income tax (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1513

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