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Title:A growth oriented dual income tax PDF Logo
Authors:Keuschnigg, Christian
Dietz, Martin D.
Issue Date:2005
Series/Report no.:CESifo working papers 1513
Abstract:This paper proposes a growth-oriented dual-income tax by combining an allowance for corporate equity with a broadly defined flat tax on personal capital income. Revenue losses are compensated by an increase in the value added tax. The paper demonstrates the neutrality properties of the reform with respect to investment, firm financial decisions and organizational choice. Tax rates are chosen to prevent income shifting from labor to capital income. The reform decisively strengthens investment of domestically owned firms as well as home and foreign based multinationals and boosts savings. Simulations with a calibrated growth model for Switzerland indicate that the reform could add between 2 to 3 percent of GDP in the long run, depending on the specific scenario. Given the slow nature of capital accumulation, it also imposes considerable costs in the short run. We also consider a tax smoothing scenario to offset the intergenerationally redistributive effects.
Subjects:tax reform
investment
financial structure
growth
JEL:G32
D58
E62
H25
D92
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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