Capital Income Taxation and Specialization Patterns: Investment Tax vs. Saving Tax

Yoshiyasu Ono and Akihisa Shibata

No 613, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: Unless free international lending/borrowing is allowed, domestic saving equals domestic investment and hence saving and investment taxes have the identical effect, as is the case in a closed-economy context. However, if it is allowed, households can accumulate foreign assets besides domestic capital and hence saving and investment are separated, causing the two taxes to have different effects. Using a two-sector growth model, we show that the two taxes generate completely different effects on industrial structure. The investment tax always shrinks the capital-intensive sector whereas the saving tax may well expand it.

Keywords: saving tax; investment tax; two-sector growth model; industrial structure; financial asset trade (search for similar items in EconPapers)
JEL-codes: E62 F41 (search for similar items in EconPapers)
Pages: 30pages
Date: 2006-03
New Economics Papers: this item is included in nep-fmk, nep-mac, nep-pbe and nep-pub
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Working Paper: Capital Income Taxation and Specialization Patterns: Investment Tax vs. Saving Tax (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:613

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