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Capital Income Taxation and Welfare under DSGE Framework

Umut Unal ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a dynamic stochastic general equilibrium (DSGE) model for analyzing the impact of various capital income tax policies in a small open economy that is populated by households possessing endogenous time preferences. We contribute to the literature by studying the impacts of: i) anticipated tax shocks under stochastically growing output, ii) stochastic tax shocks under deterministic output, on our dynamic general equilibrium framework. With our model's specifications, this is the first attempt to integrate uncertainty in the study of taxation and welfare. Our results suggest that only under certain conditions welfare paradoxes may exist, in the sense that increases in tax instruments may improve welfare.

Keywords: Endogenous time preference; adjustment costs; perturbation methods; stochastic shocks. (search for similar items in EconPapers)
JEL-codes: E62 F4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-pub
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:68416

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