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

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  • PIETRO F. PERETTO

Abstract

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 produces lower steady‐state growth despite the fact that the economy’s saving and employment ratios rise. Most importantly, it produces a welfare loss of 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%.

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  • Pietro F. Peretto, 2011. "The Growth and Welfare Effects of Deficit‐Financed Dividend Tax Cuts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(5), pages 835-869, August.
    • Handle: RePEc:wly:jmoncb:v:43:y:2011:i:5:p:835-869
    DOI: 10.1111/j.1538-4616.2011.00399.x
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