Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/52424
Authors: 
Angelopoulos, Konstantinos
Jiang, Wei
Malley, Jim
Year of Publication: 
2011
Series/Report no.: 
CESifo working paper: Fiscal Policy, Macroeconomics and Growth 3600
Abstract: 
In this paper we examine the importance of imperfect competition in product and labour markets in determining the long-run welfare effects of tax reforms assuming agent heterogeneity in capital holdings. Each of these market failures, independently, results in welfare losses for at least a segment of the population, after a capital tax cut and a concurrent labour tax increase. However, when combined in a realistic calibration to the UK economy, they imply that a capital tax cut will be Pareto improving in the long run. Consistent with the theory of second-best, the two distortions in this context work to correct the negative distributional effects of a capital tax cut that each one, on its own, creates.
Subjects: 
market imperfections
heterogeneous agents
unemployment
tax reform
JEL: 
E24
E62
Document Type: 
Working Paper

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