Revisiting the capital tax ambiguity result

Selim, Sheikh Tareq 2011. Revisiting the capital tax ambiguity result. Quantitative and Qualitative Analysis in Social Sciences 5 (1) , pp. 37-48.

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Abstract

We provide a welfare based interpretation of the capital tax ambiguity result (due to Guo and Lansing, 1999). We show that the sign ambiguity of optimal capital tax rate in an imperfectly competitive economy is mainly due to the welfare cost of investment. The substitution and income effects of profit seeking investment reinforce each other which creates a deadweight loss in welfare. Investors cannot perceive this effect and never invest at the right level. This loss is perceived only by the government which motivates capital taxation.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > H Social Sciences (General) H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management H Social Sciences > HJ Public Finance
Additional Information:	Optimal taxation ; Monopoly power Ramsey policy
ISSN:	1752-8925
Related URLs:	http://www.qass.org.uk/
Last Modified:	19 Mar 2016 22:59
URI:	https://orca.cardiff.ac.uk/id/eprint/34095

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