Publication at Faculty of Social Sciences, Faculty of Mathematics and Physics, Centre for Economic Research and Graduate Education |
2019
Abstract
In the United States, different types of capital are effectively taxed at different rates. In particular, effective tax rates on structures have been higher than those on equipments.
Eliminating these differentials has been the subject of policy debates. This paper analyzes the consequences of eliminating capital tax differentials using an incomplete markets model with equipment-skill complementarity.
The reform improves productive efficiency by eliminating distortions in capital accumulation. It also increases the degree of equality by reducing the skill premium.
The reform increases average welfare by approximately 0.11%.