Abstract
AbstractPrevious studies of the U.S. Great Depression find that increased government spending and 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, excess profits, and undistributed profits predicts patterns of output, investment, and hours worked that are more like those in the 1930s than found in earlier studies. The greatest effects come from the increased taxes on corporate dividends and undistributed profits.
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