02094cas a2200265 a 4500 AALejournalIMF020912 230101c9999 xx r poo 0 0eng d 5.00 USD 9781513545868 1018-5941 BD-DhAAL BD-DhAAL Fotiou, Alexandra. The Fiscal State-Dependent Effects of Capital Income Tax Cuts / Alexandra Fotiou, Wenyi Shen, Shu-Chun Susan Yang. Washington, D.C. : International Monetary Fund, 2020. 1 online resource (54 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Using the post-WWII data of U.S. federal corporate income tax changes, within a Smooth Transition VAR, this paper finds that the output effect of capital income tax cuts is government debt-dependent: it is less expansionary when debt is high than when it is low. To explore the mechanisms that can drive this fiscal state-dependent tax effect, the paper uses a DSGE model with regime-switching fiscal policy and finds that a capital income tax cut is stimulative to the extent that it is unlikely to result in a future fiscal adjustment. As government debt increases to a sufficiently high level, the probability of future fiscal adjustments starts rising, and the expansionary effects of a capital income tax cut can diminish substantially, whether the expected adjustments are through a policy reversal or a consumption tax increase. Also, a capital income tax cut need not always have large revenue feedback effects as suggested in the literature. Mode of access: Internet Shen, Wenyi. Susan Yang, Shu-Chun. IMF Working Papers; Working Paper ; No. 2020/071 Full text available on IMF http://elibrary.imf.org/view/journals/001/2020/071/001.2020.issue-071-en.xml IMF e-Library