Tax reform for a fairer, more vibrant economy
Document Type
Journal article
Source Publication
Modern Economy
Publication Date
7-2016
Volume
7
Issue
8
First Page
881
Last Page
893
Publisher
Scientific Research Publishing, Inc.
Keywords
Tax Reform, Economic Rent, Rent Intensity, Progressivity, Efficiency
Abstract
The paper reviews the recent literature on tax reform, and recommends abolishing the profits tax and treating personal incomes from all sources as taxable, including capital gains and dividends. Abolition of the profits tax will vastly improve the investment environment and eliminate wasteful distortions. We also offer an intermediate “gradualist” approach involving halving the profit tax rate and taxing half of dividends and capital gains. We augmented a model proposed by Chetty and Saez to incorporate the effects of manager effort for investment and showed the strong adverse effect of the profit tax on investment. Given that successive increments in total personal incomes from all sources are typically characterized by increasing intensity in economic rent, a progressive tax structure with high marginal tax rates at the top and wide tax bands is not only more equitable, but can be justified on efficiency grounds.
DOI
10.4236/me.2016.78092
Print ISSN
21527245
E-ISSN
21527261
Publisher Statement
Copyright © 2016 by authors and Scientific Research Publishing Inc. Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Ho, L. S. & Zhang, T. (2016). Tax reform for a fairer, more vibrant economy. Modern Economy, 7(8), 881-893. doi: 10.4236/me.2016.78092