Capital Taxes with Real and Financial Frictions

Abstract:     
Models of capital taxation either ignore the real costs of adjusting capital or assume quadratic costs of adjustment. Furthermore, while the financial literature does include financial frictions alongside taxes, this literature gives a superficial treatment to the real costs of adjustment and does not focus on traditional public finance questions such as the aggregate impact of tax policy. This paper merges these diverse literatures, focusing on how frictions, real and financial, affect the outcomes of capital tax policy.

Number of Pages in PDF File: 45

Keywords: Corporate Finance, Firm Behavior, Capital Taxes

JEL Classification: D21, E22, G11, H25

working papers series