The Impact of Changes in Expected Marginal Tax Rates on Nominal Interest Rates

William R. Hosek and Frank Zahn ()
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William R. Hosek: College of Business Administration, California State University, Postal: Northridge at 18111 Nordhoff Street, Northridge, CA 91330, USA, http://www.csun.edu/
Frank Zahn: Department of Economics, University of Nebrasca, Postal: 6001 Dodge Street, Omaha, NE 68182, USA, http://www.unomaha.edu/

Economia Internazionale / International Economics, 1997, vol. 50, issue 3, 427-436

Abstract: This paper provides a structural analysis of the principal allocative and aggre¬gate effects of changes in marginal tax rates on nominal interest rates. Over the sample period the sensitivity of the nominal interest rate to changes in the marginal tax rate rises and falls with the nominal interest rate, suggesting that during periods of rising nominal interest rates, higher marginal tax rates may not help to reduce the government deficit. However, as nominal interest rates fall, the aggregate effects of higher marginal tax rates become relatively larger than the allocative effects, suggesting that nominal interest rates become less sensitive to changes in marginal tax rates and higher marginal tax rates may help to reduce the government deficit.

JEL-codes: E43 E62 (search for similar items in EconPapers)
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:ris:ecoint:0331

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