Capital Income Taxation and Specialization Patterns: Investment Tax vs. Saving Tax

32 Pages Posted: 29 Mar 2006

See all articles by Yoshiyasu Ono

Yoshiyasu Ono

Osaka University - Institute of Social and Economic Research (ISER)

Akihisa Shibata

Kyoto University

Date Written: March 2006

Abstract

Unless free international lending/borrowing is allowed, domestic saving equals domestic investment and hence saving and investment taxes have the identical effect, as is the case in a closed-economy context. However, if it is allowed, households can accumulate foreign assets besides domestic capital and hence saving and investment are separated, causing the two taxes to have different effects. Using a two-sector growth model, we show that the two taxes generate completely different effects on industrial structure. The investment tax always shrinks the capital-intensive sector whereas the saving tax may well expand it.

Keywords: saving tax, investment tax, two-sector growth model, industrial structure, financial asset trade

JEL Classification: F41, E62

Suggested Citation

Ono, Yoshiyasu and Shibata, Akihisa, Capital Income Taxation and Specialization Patterns: Investment Tax vs. Saving Tax (March 2006). ISER Discussion Paper No. 649. Available at SSRN: https://ssrn.com/abstract=892957 or http://dx.doi.org/10.2139/ssrn.892957

Yoshiyasu Ono (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

Akihisa Shibata

Kyoto University ( email )

Yoshida-Honmachi, Sakyo-ku
Institute of Economic Research
Kyoto 606-8501
075 753 7198 (Fax)

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