Working Paper: NBER ID: w1356
Authors: Lawrence H. Summers
Abstract: This paper summarizes my recent research directed at the development of an asset price approach to the analysis of capital income taxation. While asset prices play a crucial role in many macroeconomic models, they have been subordinate in most previous efforts to study the effects of capital income taxation on economic behavior. A number of reasons for focusing on the role of asset prices in analyzing public finance questions are discussed. These include the role of asset prices in determining investment decisions, and the fact that changes in asset prices are indicators of the horizontal and vertical equity effects of tax reforms. Recent empirical research in which asset price information is studied in order to measure the effects on economic behavior of tax reforms and to distinguish between alternative models of the effects of capital income taxation is reviewed. Directions for future research in public finance, focusing on asset markets, are also discussed.
Keywords: Capital Income Taxation; Asset Prices; Investment Decisions; Public Finance
JEL Codes: H21; H25; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tax reforms (H29) | Asset prices (G19) |
| Asset prices (G19) | Investment decisions (G11) |
| Inflation (E31) | Effective taxation of real income (H29) |
| Effective taxation of real income (H29) | Investment decisions (G11) |
| Tax reforms (H29) | Wealth distribution among asset holders (D31) |
| Asset prices (G19) | Market valuation of existing assets (G19) |
| Tax reforms (H29) | Market valuation of existing assets (G19) |