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Political Economy in a Contestable Democracy: The Case of Dividend Taxation

Author

Listed:
  • Joseph E. Stiglitz

    (Columbia University)

  • Anton Korinek

    (University of Maryland)

Abstract

We show that aggregate investment is generally higher under the party that sets higher tax rates, since private firms pay out lower dividends and carry more working capital, leading to higher investment. Furthermore, both parties bias their tax rates upwards (beyond the rates that they would set if they were in power permanently) in an effort to increase investment under their regime. We also discuss how the distortion could be addressed through cooperation between the two parties.

Suggested Citation

  • Joseph E. Stiglitz & Anton Korinek, 2008. "Political Economy in a Contestable Democracy: The Case of Dividend Taxation," 2008 Meeting Papers 760, Society for Economic Dynamics.
    • Handle: RePEc:red:sed008:760
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    Cited by:

    1. Nunes, Ricardo, 2008. "Delegation and Loose Commitment," MPRA Paper 11555, University Library of Munich, Germany.
    2. Korinek, Anton & Stiglitz, Joseph E., 2009. "Dividend taxation and intertemporal tax arbitrage," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 142-159, February.
    3. Stiglitz, Joseph, 2021. "Lessons from COVID-19 and Trump for Theory and Policy (Paper)," Journal of Policy Modeling, Elsevier, vol. 43(4), pages 749-760.
    4. Stiglitz, Joseph E., 2019. "Addressing climate change through price and non-price interventions," European Economic Review, Elsevier, vol. 119(C), pages 594-612.
    5. Stiglitz, Joseph E., 2018. "Pareto efficient taxation and expenditures: Pre- and re-distribution," Journal of Public Economics, Elsevier, vol. 162(C), pages 101-119.

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