Change - over within little scope : on the decision neutrality of recent tax reform proposals ∗

We provide an extended dynamic general equilibrium model for investigating decision neutrality of tax systems and apply it in analyzing recent tax reform proposals. The Swiss ACE Dual Income Tax (SADIT) and the German Dual Income Tax (GDIT) come under scrutiny. We propose an alternative tax reform which guarantees a higher degree of neutrality without necessarily jeopardizing political feasibility. We show, that all three proposals achieve financial neutrality. In terms of the investment decision and intertemporal effects the proposals differ significantly. ∗We would like to thank Manfred Rose and Marko Thomas Scholz for fruitful discussions during the conceptual design of a reform proposal discussed in this paper.