Revisiting the capital tax ambiguity result

Selim, Sheikh Tareq 2006. Revisiting the capital tax ambiguity result. [Working Paper]. Cardiff Economics Working Papers, Cardiff: Cardiff University. Available at: http://business.cardiff.ac.uk/sites/default/files/...

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Abstract

We provide a welfare based interpretation of the capital tax ambiguity result (due to Guo & 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 create 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:	Monograph (Working Paper)
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HF Commerce H Social Sciences > HG Finance
Uncontrolled Keywords:	Optimal taxation, Monopoly power, Ramsey policy.
Publisher:	Cardiff University
ISBN:	1749-6101
Date of First Compliant Deposit:	30 March 2016
Last Modified:	19 Mar 2016 23:08
URI:	https://orca.cardiff.ac.uk/id/eprint/39890

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