Greg Mankiw offers a simple example to establish that a reduction in the tax rate on capital income (in a closed economy) raises wages in the long run. John Cochrane patiently typed the solution. And Larry Summers argues on his blog that US realities are not well captured by Mankiw’s example.
Tag Archives: Capital income tax
“Zinsen, Inflation und Realismus (Interest, Inflation and Realism),” FuW, 2016
Finanz und Wirtschaft, April 30, 2016. PDF. Ökonomenstimme, May 6, 2016. HTML.
The winners and losers of the current monetary environment are not that easy to identify. Investors holding long-term, non-indexed debt gain as unexpectedly low inflation shifts wealth from borrowers to lenders. Governments suffer from increased real debt burdens and reduced revenue due to effectively lower capital income tax rates. Policies that succeed in affecting the real exchange rate entail redistribution.
Tax Treatment of Negative Interest Rates in Germany
The German Ministry of Finance has decided (p. 55, nr. 129a) that for tax purposes, negative interest rates are not to be treated as the opposite of positive interest rates. Instead they are considered fees. This treatment lowers taxable income to a lesser extent than would be the case under a symmetric treatment.