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Laffer strikes again: Dynamic scoring of capital taxes

Holger Strulik () and Timo Trimborn ()

European Economic Review, 2012, vol. 56, issue 6, 1180-1199

Abstract: We set up a neoclassical growth model extended by a corporate sector, an investment and finance decision of firms, and a set of taxes on capital income. We provide analytical dynamic scoring of taxes on corporate income, dividends, capital gains, other private capital income, and depreciation allowances and identify the intricate ways through which capital taxation affects tax revenue in general equilibrium. We then calibrate the model for the US and explore quantitatively the revenue effects from capital taxation. We take adjustment dynamics after a tax change explicitly into account and compare with steady-state effects. We find, among other results, a self-financing degree of corporate tax cuts of about 70–90% and a very flat Laffer curve for all capital taxes as well as for tax depreciation allowances. Results are strongest for the tax on capital gains. The model predicts for the US that total tax revenue increases by about 0.3–1.2% after abolishment of the tax.

Keywords: Corporate taxation; Capital gains; Tax allowances; Revenue estimation; Laffer curve; Dynamic scoring (search for similar items in EconPapers)
JEL-codes: E60 H20 O40 (search for similar items in EconPapers)
Date: 2012
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Related works:
Working Paper: Laffer Strikes Again: Dynamic Scoring of Capital Taxes (2011) Downloads
Working Paper: Laffer Strikes Again: Dynamic Scoring of Capital Taxes (2010) Downloads
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