The Marginal Excess Burden of Different Capital Tax Instruments

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Abstract
Others have measured the addition to deadweight loss from an increase in an effective capital income tax rate, but there is no single way to raise such a rate. In our general equilibrium model with multiple distortions in the allocation of real resources, we find that an increase in the statutory corporate income tax rate has the highest marginal excess burden, because it distorts intersectoral and interasset decisions as well as intertemporal decisions. An investment tax credit reduction has negative marginal excess burden because it raises revenue while reducing interasset distortions more than it increases intertemporal distortions.

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