SIMULATING CAPITAL INCOME TAXATION AND WELFARE UNDER A DSGE FRAMEWORK

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ÜNAL U.

ARGUMENTA OECONOMICA, vol.40, no.1, pp.81-113, 2018 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 40 Issue: 1
  • Publication Date: 2018
  • Doi Number: 10.15611/aoe.2018.1.04
  • Journal Name: ARGUMENTA OECONOMICA
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.81-113
  • Middle East Technical University Affiliated: Yes

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 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 into 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.