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The Implications of Risk and Irreversibility for the Measurement of Marginal Effective Tax Rates on Capital

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  • Kenneth J. McKenzie

Abstract

The implications of risk and irreversibility for the measurement of marginal effective tax rates on capital are examined. It is shown that, when capital is irreversible, the marginal effective tax rate is an increasing function of systematic and unsystematic capital and income risk. The tax system may, thus, distort investments in risky capital to a much greater extent than is implied by previous research that ignored irreversibilities. Marginal effective tax rate calculations based upon the Canadian corporate tax system are provided.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 27 (1994)
Issue (Month): 3 (August)
Pages: 604-19

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Handle: RePEc:cje:issued:v:27:y:1994:i:3:p:604-19

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Cited by:
  1. Jack Mintz, 1995. "Corporation tax: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 16(4), pages 23-68, November.
  2. Norman Schurhoff, 2004. "Capital gains taxes, irreversible investment, and capital structure," 2004 Meeting Papers 592b, Society for Economic Dynamics.
  3. Kenneth McKenzie & Jack Mintz & Kimberly Scharf, 1997. "Measuring Effective Tax Rates in the Presence of Multiple Inputs: A Production Based Approach," International Tax and Public Finance, Springer, vol. 4(3), pages 337-359, July.
  4. Miquel Faig & Pauline Shum, 1996. "Irreversible Investment, Financing Choice and Asymmetric Corporate Taxes," Working Papers faig-96-01, University of Toronto, Department of Economics.
  5. Paolo M. Panteghini, 2005. "Asymmetric Taxation under Incremental and Sequential Investment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(5), pages 761-779, December.
  6. Annick Hespel & Michel Mignolet, 2000. "Tax-aided financial services companies and the cost of capital," Fiscal Studies, Institute for Fiscal Studies, vol. 21(3), pages 349-374, September.
  7. Miquel Faig & Pauline Shum, 1997. "INVESTMENT IRREVERSIBILITY AND ENDOGENOUS FINANCING: An Evaluation of the Corporate Tax Effects," Working Papers faig-97-02, University of Toronto, Department of Economics.
  8. Faig, Miquel & Shum, Pauline, 1999. "Irreversible investment and endogenous financing: An evaluation of the corporate tax effects," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 143-171, February.
  9. Paolo Panteghini, 2000. "On Corporate Tax Asymmetries and Neutrality," CESifo Working Paper Series 276, CESifo Group Munich.
  10. Alowin Moes, 1999. "Effective Tax Rates on Capital in New Zealand - Changes 1972-1998," Treasury Working Paper Series 99/12, New Zealand Treasury.
  11. Kenneth McKenzie, 2008. "Measuring tax incentives for R&D," International Tax and Public Finance, Springer, vol. 15(5), pages 563-581, October.

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