Abstract :
MotivatedbytheJobsandGrowthTaxReliefReconciliationAct(JGTRRA)of2003,the
effectsofcapitalincometaxcutsareinvestigatedinaneconomywithheterogeneous
householdsandarepresentative,maturefirm.Dividendtaxcuts,contrarytocapital
gains taxcuts,leadtoadecreaseininvestmentandcapital.Thisisbecausethey
increasethemarketvalueofexistingcapitalandhouseholdsrequireahigherreturnto
hold thisadditionalwealth.Inlinewithempiricalevidence,themodelpredicts
substantialincreasesindividendsandstockprices.Overall,thetaxcutsleadtoa
welfarereductionequivalenttoaconsumptiondropof0.5
