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Deferred Taxation and Effective Tax Rates on Income from Capital in the United States, 2000-2010

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  • Polito, Vito

    ()
    (Cardiff Business School)

Abstract

The accounting and economic literature have long highlighted the potential implications of deferred taxation for tax policy analysis. This paper incorporates deferred taxation into the neoclassical investment model for the computation of the Effective Tax Rate (ETR) on business investment and revisits the empirical evidence on the evolution of ETRs in the United States over the last decade. The numerical results show that after including deferred taxation there is little differential in the ETRs across assets; ETRs in the 2000s have been essentially in line with statutory rates; and partial expensing had little effect on ETRs. These results hold whether investment is financed by equity or debt; profits are distributed to individual shareholders through dividends, interests or capital gains; and regardless of the differential between book and economic depreciation.

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Bibliographic Info

Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2011/14.

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Length: 43 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:cdf:wpaper:2011/14

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Keywords: Deferred taxation; effective marginal tax rates; taxation of income from capital;

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  1. King, Mervyn A, 1974. "Taxation and the Cost of Capital," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 41(1), pages 21-35, January.
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  9. Mervyn A. King & Don Fullerton, 1984. "The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number king84-1.
  10. Mills, Lillian F. & Plesko, George A., 2003. "Bridging the Reporting Gap: A Proposal for More Informative Reconciling of Book and Tax Income," National Tax Journal, National Tax Association, vol. 56(4), pages 865-93, December.
  11. Michelle Hanlon & Terry Shevlin, 2005. "Book-Tax Conformity for Corporate Income: An Introduction to the Issues," NBER Chapters, National Bureau of Economic Research, Inc, in: Tax Policy and the Economy, Volume 19, pages 101-134 National Bureau of Economic Research, Inc.
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