The Asset Price Approach to the Analysis of Capital Income Taxation

Lawrence Summers

No 1356, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper summarizes my recent research directed at the development of an asset price approach to the analysis of capital income taxation. While asset prices play a crucial role in many macroeconomic models, they have been subordinate in most previous efforts to study the effects of capital income taxation on economic behavior. A number of reasons for focusing on the role of asset prices in analyzing public finance questions are discussed. These include the role of asset prices in determining investment decisions, and the fact that changes in asset prices are indicators of the horizontal and vertical equity effects of tax reforms. Recent empirical research in which asset price information is studied in order to measure the effects on economic behavior of tax reforms and to distinguish between alternative models of the effects of capital income taxation is reviewed. Directions for future research in public finance, focusing on asset markets, are also discussed.

Date: 1984-05
Note: PE
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Published as Summers, Lawrence H. "The Asset Price Approach to the Analysis of Capital Income Taxation," Issues in Contemporary Macroeconomics and Distribution, ed. George R. Felwil, pp. 429-443. London: Macmillan, 1985.

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