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A Backward Looking Measure of the Effective Marginal Tax Burden on Investment

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  • Johannes Becker
  • Clemens Fuest

Abstract

Forward looking measures like the well-known effective marginal tax rate developed by King and Fullerton (1984) are often criticized for not taking into account the complexity of the tax law. This paper derives a method of evaluating this kind of measure and of quantifying the bias resulting from simplifying assumptions, especially on the pattern of depreciation deductions. We apply our method to German data and find that even small estimation biases in determining the tax deductions have a large impact on the effective tax rates for marginal and inframarginal investment projects. We conclude that our method may be used to quantify exactly the difference between the actual use of depreciation deductions and the King-Fullerton assumptions and therefore to correct the conventional forward looking measures.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2004/wp-cesifo-2004-11/cesifo1_wp1342.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1342.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1342

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Keywords: effective tax rates; corporate taxation;

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References

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  1. Roger Gordon & Laura Kalambokidis & Joel Slemrod, 2003. "A New Summary Measure of the Effective Tax Rate on Investment," NBER Working Papers 9535, National Bureau of Economic Research, Inc.
  2. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, vol. 68(3), pages 335-367, June.
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Cited by:
  1. Johannes Becker & Clemens Fuest, 2006. "Ist Deutschland Hoch- oder Niedrigsteuerland? Der Versuch einer Synthese," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(1), pages 35-42, 02.
  2. Jacqueline Haverals, 2005. "IAS/IFRS in Belgium: Quantitative Analysis of the Impact on the Tax Burden of Companies," Working Papers CEB 05-011.RS, ULB -- Universite Libre de Bruxelles.
  3. Becker, Johannes & Fuest, Clemens & Spengel, Christoph, 2005. "Konzernsteuerquote und Invesitionsverhalten," ZEW Discussion Papers 05-33, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Axel Dreher, 2003. "The Influence of Globalization on Taxes and Social Policy – an Empirical Analysis for OECD Countries," Public Economics 0310002, EconWPA, revised 27 Feb 2004.
  5. Johannes Becker & Clemens Fuest, 2005. "Does Germany Collect Revenue from Taxing Capital Income?," CESifo Working Paper Series 1489, CESifo Group Munich.
  6. Johannes Becker & Clemens Fuest & Thomas Hemmelgarn, 2006. "Corporate Tax Reform and Foreign Direct Investment in Germany – Evidence from Firm-Level Data," CESifo Working Paper Series 1722, CESifo Group Munich.
  7. Deborah Knirsch, 2007. "Measuring tax distortions with neutrality-based effective tax rates," Review of Managerial Science, Springer, vol. 1(2), pages 151-165, August.

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