Laffer Strikes Again: Dynamic Scoring of Capital Taxes

We set up a neoclassical growth model extended by a corporate sector, aninvestment and finance decision of firms, and a set of taxes on capital income. We provideanalytical dynamic scoring of taxes on corporate income, dividends, capital gains, otherprivate capital income, and depreciation allowances and identify the intricate ways throughwhich capital taxation affects tax revenue in general equilibrium. We then calibrate themodel for the US and explore quantitatively the revenue effects from capital taxation. Wetake adjustment dynamics after a tax change explicitly into account and compare withsteady-state effects. We find, among other results, a self-financing degree of corporate taxcuts of about 70-90 percent and a very flat Laffer curve for all capital taxes as well asfor tax depreciation allowances...