Capital Taxation During the U.S. Great Depression
Previous studies of the U.S. Great Depression find that increased taxation contributed little to either the dramatic downturn or the slow recovery. These studies include only one type of capital taxation: a business profits tax. The contribution is much greater when the analysis includes other types of capital taxes. A general equilibrium model extended to include taxes on dividends, property, capital stock, and excess and undistributed profits predicts patterns of output, investment, and hours worked more like those in the 1930s than found in earlier studies. The greatest effects come from the increased tax on corporate dividends.
For helpful comments, I thank Roozbeh Hosseini, Ayse Imrohoroglu, Lee Ohanian, Ed Prescott, Martin Schneider, and conference participants at the Center for the Advanced Study in Economic Efficiency. For editorial assistance, I thank Kathy Rolfe and Joan Gieseke. The views expressed herein are those of the author and not necessarily those of the Federal Reserve Bank of Minneapolis, the Federal Reserve System, or the National Bureau of Economic Research. Appendices, data, and codes are available at my website, http://www.minneapolisfed.org/research/sr/sr451.html.
Ellen R. McGrattan, 2012. "Capital Taxation During the U.S. Great Depression," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1515-1550. citation courtesy of