Does Germany Collect Revenue from Taxing Capital Income?
25 Pages Posted: 21 Jul 2005
Date Written: June 2005
A widespread objection to the introduction of consumption tax systems claims that this would lead to high tax revenue losses. This paper investigates the revenue effects of a consumption tax reform in Germany. Our results suggest that the revenue losses would be surprisingly low. We find a maximum revenue loss of 1.6 percent of annual GDP. In some years, we even find a tax revenue gain. This implies that the current tax system collects little revenue from taxing the normal return to capital. Based on these results, we calculate a macroeconomic measure of the effective tax rate on capital income.
Keywords: cash flow tax, tax revenue effects, effective taxation of capital income
JEL Classification: H25, H21
Suggested Citation: Suggested Citation