The Growth and Welfare Effects of Deficit-Financed Dividend Tax Cuts

I develop a tractable growth model that allows me to study analytically transition dynamics and welfare in response to a deficit-financed cut of the tax rate on distributed dividends. I then carry out a quantitative assessment of the Job Growth and Taxpayer Relief Reconciliation Act (JGTRRA) of 2003. I find that the Act produceslowersteady-state growth despite the fact that the economy's saving and employment ratiosrise. Most importantly, it produces a welfarelossof 19.34% of annual consumption per capita-a substantial effect driven by the fact that the steady-state growth rate falls from 2% to 1.08%. © 2011 The Ohio State University.

Duke Scholars

Author Pietro F. Peretto Economics