A general proposition on the design of a neutral business tax
AbstractA business tax is neutral if it does not effect the firms' decisions at the margin. We analyze the effect of a business tax on the firms' investment decision. The "implicit rent deduction" and "immediate write-off" methods are found to be special cases of our general tax design. The implication of our results is that a neutral "pure profits" tax can be levied without the informational difficulties of the implicit rent deduction method or the cash flow disadvantages of the immediate write-off method. The general tax design remains neutral in the presence of adjustment costs, but only the implicit rent deduction method is neutral in the face of anticipated tax rate changes.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Public Economics.
Volume (Year): 24 (1984)
Issue (Month): 2 (July)
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Web page: http://www.elsevier.com/locate/inca/505578
Other versions of this item:
- Robin Boadway & Neil Bruce, 1982. "A General Proposition on the Design of a Neutral Business Tax," Working Papers 461, Queen's University, Department of Economics.
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