A study on the state-contingent capital tax policy

Abstract

This paper aims to figure out the impacts of capital tax policy on the economy where the government has a certain policy restriction

state-contingent capital tax rate. Simultaneously, households fully understand how the government behaves and make decisions based on the policy expectation. Under the framework used in this paper, I find that the state-contingent capital tax policy results in larger fluctuations of allocations as well as policies without notable differences in utility and capital accumulation compared to the economy under the state-independent capital tax policy.