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Consumption-Based Tax Systems And Investment Neutrality: Does The Corporation Income Tax Depreciation Method Impact Investment Capital Value?

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Author Info

  • Michael Heinhold
  • Silke Hüsing
  • Helmut Pasch
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    Abstract

    In this paper we investigate the neutrality of tax allowances by considering the Croatian and the German profit taxes. Our mathematical analysis shows that in the Croatian system, neutrality cannot be attained by the allowance for corporate equity if the tax free rate of interest does not equal the individual discount rate. The sensitivity analysis shows that in the Croatian system, the profitability of early tax reductions by tax write-offs falls below the profitability in the German system by a maximum of only 2.5 percentage points. In the system that provides an allowance for corporate equity, the profitability of an early tax reduction is high enough to influence investment decisions.

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    Bibliographic Info

    Article provided by LMU Munich School of Management in its journal Schmalenbach Business Review.

    Volume (Year): 52 (2000)
    Issue (Month): 3 (July)
    Pages: 261-281

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    Handle: RePEc:sbr:abstra:v:52:y:2000:i:3:p:261-281

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    Cited by:
    1. Lammersen, Lothar, 2002. "Investment Decisions and Tax Revenues Under an Allowance for Corporate Equity," ZEW Discussion Papers 02-47, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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