IDEAS home Printed from https://ideas.repec.org/a/bla/ausecr/v53y2020i4p463-481.html
   My bibliography  Save this article

Replacing Corporate Income Tax with a Cash Flow Tax

Author

Listed:
  • Ross Garnaut
  • Craig Emerson
  • Reuben Finighan
  • Stephen Anthony

Abstract

We design a parsimonious cash flow tax for Australia and estimate revenue effects. It allows immediate deduction of all capital expenditures, denies deductions of interest payments, and compensates negative cash flows at the same rate and time as it taxes positive cash flows. It allows taxpayer timing choice on implementation over 10 years. It has incentive effects comparable to lowering the corporate income tax rate to zero. It removes distortions that artificially favour debt over equity, short‐ over long‐term investments, rents over competitive returns, large, established over small and new businesses, and conventional over innovative investments. It closes international tax evasion loopholes. Its spur to investment and timing of revenue impacts favours implementation in recession.

Suggested Citation

  • Ross Garnaut & Craig Emerson & Reuben Finighan & Stephen Anthony, 2020. "Replacing Corporate Income Tax with a Cash Flow Tax," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 53(4), pages 463-481, December.
    • Handle: RePEc:bla:ausecr:v:53:y:2020:i:4:p:463-481
    DOI: 10.1111/1467-8462.12385
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1467-8462.12385
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1467-8462.12385?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Olivier J Blanchard, 2019. "Public Debt: Fiscal and Welfare Costs in a Time of Low Interest Rates," Policy Briefs PB19-2, Peterson Institute for International Economics.
    2. Hwang, Soosung & Satchell, Steve E., 2010. "How loss averse are investors in financial markets?," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2425-2438, October.
    3. Olivier Blanchard, 2019. "Public Debt and Low Interest Rates," American Economic Review, American Economic Association, vol. 109(4), pages 1197-1229, April.
    4. Diewert, W. Erwin & Fox, Kevin J., 2008. "On the estimation of returns to scale, technical progress and monopolistic markups," Journal of Econometrics, Elsevier, vol. 145(1-2), pages 174-193, July.
    5. Garnaut, Ross & Clunies-Ross, Anthony, 1983. "Taxation of Mineral Rents," OUP Catalogue, Oxford University Press, number 9780198284543.
    6. Boadway, Robin & Bruce, Neil, 1984. "A general proposition on the design of a neutral business tax," Journal of Public Economics, Elsevier, vol. 24(2), pages 231-239, July.
    7. David Autor & David Dorn & Lawrence F Katz & Christina Patterson & John Van Reenen, 2020. "The Fall of the Labor Share and the Rise of Superstar Firms [“Automation and New Tasks: How Technology Displaces and Reinstates Labor”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 645-709.
    8. Zee, Howell H., 2005. "A New Approach to Taxing Financial Intermediation Services Under a Value–Added Tax," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(1), pages 77-92, March.
    9. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
    10. Craig Emerson & Ross Garnaut, 1984. "Mineral Leasing Policy: Competitive Bidding and the Resource Rent Tax Given Various Responses to Risk," The Economic Record, The Economic Society of Australia, vol. 60(2), pages 133-142, June.
    11. Mr. Federico J Diez & Mr. Daniel Leigh & Suchanan Tambunlertchai, 2018. "Global Market Power and its Macroeconomic Implications," IMF Working Papers 2018/137, International Monetary Fund.
    12. Rui Castro & Gian Luca Clementi & Glenn MacDonald, 2004. "Investor Protection, Optimal Incentives, and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(3), pages 1131-1175.
    13. Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1039-1061.
    14. Garnaut, Ross & Clunies Ross, Anthony, 1975. "Uncertainty, Risk Aversion and the Taxing of Natural Resource Projects," Economic Journal, Royal Economic Society, vol. 85(338), pages 272-287, June.
    15. Zeira, Joseph, 1990. "Cost uncertainty and the rate of investment," Journal of Economic Dynamics and Control, Elsevier, vol. 14(1), pages 53-63, February.
    16. Alvaro Angeriz & John McCombie & Mark Roberts, 2008. "Returns to Scale for EU Regional Manufacturing," Working Papers 20, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    17. Emerson, Craig & Garnaut, Ross, 1984. "Mineral Leasing Policy: Competitive Bidding and the Resource Rent Tax Given Various Responses to Risk," The Economic Record, The Economic Society of Australia, vol. 60(169), pages 133-142, June.
    18. João P. Romero & John S.L. McCombie, 2016. "Differences in increasing returns between technological sectors," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 43(5), pages 863-878, October.
    19. Janine M. Dixon & Jason Nassios, 2018. "A Dynamic Economy-wide Analysis of Company Tax Cuts in Australia," Centre of Policy Studies/IMPACT Centre Working Papers g-287, Victoria University, Centre of Policy Studies/IMPACT Centre.
    20. Alvaro Angeriz & John McCombie & Mark Roberts, 2008. "New Estimates of Returns to Scale and Spatial Spillovers for EU Regional Manufacturing, 1986—2002," International Regional Science Review, , vol. 31(1), pages 62-87, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. John Freebairn, 2022. "Company Income Tax and Business Investment," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 55(3), pages 346-360, September.
    2. Paul J. Burke, 2023. "On the way out: Government revenues from fossil fuels in Australia," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 67(1), pages 1-17, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Laurence Kotlikoff & Felix Kubler & Andrey Polbin & Simon Scheidegger, 2021. "Pareto-improving carbon-risk taxation [The environment and directed technical change]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 36(107), pages 551-589.
    2. Marwil J. Dávila-Fernández, 2018. "Alternative Approaches to Technological Change when Growth is BoPC," Department of Economics University of Siena 795, Department of Economics, University of Siena.
    3. David Kiefer & Ivan Mendieta-Muñoz & Codrina Rada & Rudiger von Arnim, 2020. "Secular Stagnation and Income Distribution Dynamics," Review of Radical Political Economics, Union for Radical Political Economics, vol. 52(2), pages 189-207, June.
    4. Harris, Richard & Moffat, John, 2011. "Plant-level determinants of total factor productivity in Great Britain, 1997-2006," LSE Research Online Documents on Economics 33561, London School of Economics and Political Science, LSE Library.
    5. João Prates Romero, 2016. "Increasing Returns To Scale, Technological Catch-Up And Research Intensity: An Industry-Level Investigation Combining Eu Klems Productivity Data With Patent Data," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 102, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    6. Robin Boadway & Michael Keen, 2014. "Rent Taxes and Royalties in Designing Fiscal Regimes for Non-Renewable Resources," CESifo Working Paper Series 4568, CESifo.
    7. Feld, Lars P. & Schmidt, Christoph M. & Schnabel, Isabel & Truger, Achim & Wieland, Volker, 2019. "Den Strukturwandel meistern. Jahresgutachten 2019/20 [Dealing with Structural Change. Annual Report 2019/20]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201920.
    8. Marwil J. Dávila-Fernández, 2020. "Alternative approaches to technological change in a small open economy," Journal of Evolutionary Economics, Springer, vol. 30(2), pages 279-317, April.
    9. Sampi Bravo,James Robert Ezequiel & Jooste,Charl & Vostroknutova,Ekaterina, 2021. "Identification Properties for Estimating the Impact of Regulation on Markups and Productivity," Policy Research Working Paper Series 9523, The World Bank.
    10. Osmel Manzano & Francisco Monaldi, 2008. "The Political Economy of Oil Production in Latin America," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2008), pages 59-103, August.
    11. Foders, Federico, 1985. "Firm behaviour under alternative bidding systems for US OCS hydrocarbon leases," Kiel Working Papers 223, Kiel Institute for the World Economy (IfW Kiel).
    12. Smith, B., 1999. "The Impossibility of a Neutral Resource Rent Tax," ANU Working Papers in Economics and Econometrics 1999-380, Australian National University, College of Business and Economics, School of Economics.
    13. Justin Doran & Bernard Fingleton, 2014. "Economic shocks and growth: Spatio-temporal perspectives on Europe's economies in a time of crisis," Papers in Regional Science, Wiley Blackwell, vol. 93, pages 137-165, November.
    14. Luca Metelli & Kevin Pallara, 2020. "Fiscal space and the size of the fiscal multiplier," Temi di discussione (Economic working papers) 1293, Bank of Italy, Economic Research and International Relations Area.
    15. Das, Piyali & Ghate, Chetan, 2022. "Debt decomposition and the role of inflation: A security level analysis for India," Economic Modelling, Elsevier, vol. 113(C).
    16. Peppel-Srebrny, Jemima, 2021. "Not all government budget deficits are created equal: Evidence from advanced economies' sovereign bond markets," Journal of International Money and Finance, Elsevier, vol. 118(C).
    17. Johannes Blum & Klaus Gründler & Raphael de Britto Schiller & Niklas Potrafke, 2019. "Die Schuldenbremse in der Diskussion – Teilnehmer des Ökonomenpanels mehrheitlich für Beibehaltung," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 72(22), pages 27-33, November.
    18. Simeon Djankov & Ugo Panizza, 2020. "Developing economies after COVID-19: An introduction," Vox eBook Chapters, in: Simeon Djankov & Ugo Panizza (ed.), COVID-19 in Developing Economies, edition 1, volume 1, chapter 1, pages 8-23, Centre for Economic Policy Research.
    19. Alan J. Auerbach, 2006. "The Future of Capital Income Taxation," Fiscal Studies, Institute for Fiscal Studies, vol. 27(4), pages 399-420, December.
    20. Schuster, Florian & Krahé, Max & Schneemelcher, Pola & Sigl-Glöckner, Philippa, 2022. "Do the MTO's cyclically adjusted budget balances serve their purpose? An analysis and a reform proposal," Papers 277894, Dezernat Zukunft - Institute for Macrofinance, Berlin.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ausecr:v:53:y:2020:i:4:p:463-481. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/mimelau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.