Published and unpublished papers by Wei Xiao

End of Double Taxation, Policy Announcement, and Business Cycles

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A working paper written jointly with Nazneen Ahmad. (Download)

This paper examines the effectiveness of the “end of double taxation” (on dividends) policy in stabilizing the economy. Both announced and unannounced policies are considered. A reduction in double taxation stimulates investment and improves welfare, but its impact on output is moderate and it has a negative effect on work hours. Temporary tax cuts serve as a double-edged sword that creates an investment boom but also generates an investment slump when the tax cut expires. Announcements of future tax cuts may have important effect on output dynamics. Agents respond to the tax policy even before it is implemented. If the tax cut is announced to be temporary, its impact on output can be greatly reduced.


Written by wxiao

January 21, 2009 at 6:47 pm

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