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Tax Neutrality Under Parallel Tax Systems

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  • Andrew B. Lyon

    (University of Maryland)

Abstract

Many countries' income tax systems consist of multiple tax schedules that comprise a parallel tax system. For instance, one firm may face a given statutory rate and set of depreciation rules while another firm faces a different tax rate and set of rules. As income varies, a firm may switch from one set of rules to another. Progressive marginal tax schedules, rules on loss limitations, and minimum tax schedules are all examples of parallel tax systems. Taxpayers who switch across tax schedules of a parallel tax system may face investment incentives either greater or less than those of other taxpayers who are permanently subject to a single tax schedule. The article derives several different conditions under which a parallel tax system can be established that maintains neutral investment incentives for all taxpayers.

Suggested Citation

  • Andrew B. Lyon, 1992. "Tax Neutrality Under Parallel Tax Systems," Public Finance Review, , vol. 20(3), pages 338-358, July.
    • Handle: RePEc:sae:pubfin:v:20:y:1992:i:3:p:338-358
    DOI: 10.1177/109114219202000304
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    References listed on IDEAS

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    1. David F. Bradford & Don Fullerton, 1981. "Pitfalls in the Construction and Use of Effective Tax Rates," NBER Working Papers 0688, National Bureau of Economic Research, Inc.
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    7. Lyon, Andrew B., 1990. "Investment Incentives under the Alternative Minimum Tax," National Tax Journal, National Tax Association, vol. 43(4), pages 451-65, December.
    8. Fane, G., 1987. "Neutral taxation under uncertainty," Journal of Public Economics, Elsevier, vol. 33(1), pages 95-105, June.
    9. David F. Bradford, 1981. "Issues in the Design of Saving and Investment Incentives," NBER Working Papers 0637, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Niemann, Rainer, 2003. "Wie schädlich ist die Mindestbesteuerung? Steuerparadoxa in der Verlustrechnung," Tübinger Diskussionsbeiträge 259, University of Tübingen, School of Business and Economics.
    2. Andrew B. Lyon & Gerald Silverstein, 1995. "The Alternative Minimum Tax and the Behavior of Multinational Corporations," NBER Chapters, in: The Effects of Taxation on Multinational Corporations, pages 153-180, National Bureau of Economic Research, Inc.
    3. Niemann, Rainer, 2007. "Risikoübernahme, Arbeitsanreiz und differenzierende Besteuerung," arqus Discussion Papers in Quantitative Tax Research 28, arqus - Arbeitskreis Quantitative Steuerlehre.

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