Abstract
We develop an overlapping generations model with an active financial sector to differentiate loan from deposit rates and to allow for endogenous credit rationing. We evaluate the macroeconomic consequences of two interest tax policies, an increase in interest tax exemption and a reduction in the interest income tax rate, with and without credit market imperfections. While these policies have different effects in unconstrained equilibrium, they are identical in credit-constrained equilibrium. While these policies may encourage growth with credit rationing when the speed of human capital accumulation is sensitive to education, no such conclusion can be reached in unconstrained equilibrium.
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