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The Incidence of an Extended Ace Corporation Tax

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Author Info
Ernst Fehr ()
Wolfgang Wiegard ()

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Abstract

This paper deals with the efficiency and distributional consequences of a switch from the current German income and corporate tax system to one special variant of an intertemporally neutral tax, an extended ACE (allowance for corporate equity) corporation tax. This tax is favoured by the IFS Capital Taxes Group and was implemented in Croatia in 1994. We not only calculate the welfare consequences of introducing the ACE, but also separate the efficiency effects from intragenerational as well as intergenerational redistribution. The quantitative analysis is based on a dynamic simulation model of the Auerbach-Kotlikoff type which distinguishes between five income classes within each generation. The numerical results indicate that such a fundamental tax reform could yield enormous efficiency gains without necessarily increasing income inequality.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 484.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_484

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Related research
Keywords: Corporate taxation; intra- and intergenerational incidence; dynamic CGE modeling;

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Find related papers by JEL classification:
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models
H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Michael Devereux & Harold Freeman, 1991. "A general neutral profits tax," Fiscal Studies, Institute for Fiscal Studies, vol. 12(3), pages 1-15, August.
  2. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," NBER Working Papers 2097, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. David Altig & Alan J. Auerbach & Laurence J. Kotlikoff & Kent A. Smetters & Jan Walliser, 1997. "Simulating U.S. Tax Reform," NBER Working Papers 6248, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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    • David Altig & Alan J. Auerbach & Laurence J. Kotlikoff & Kent A. Smetters & Jan Walliser, 1997. "Simulating U.S. tax reform," Working Paper 9712, Federal Reserve Bank of Cleveland. [Downloadable!]
  4. Bond, Stephen R & Devereux, Michael P & Gammie, Malcolm J, 1996. "Tax Reform to Promote Investment," Oxford Review of Economic Policy, Oxford University Press, vol. 12(2), pages 109-17, Summer.
  5. Hans Fehr & Laurence J. Kotlikoff, 1997. "Generational Accounting in General Equilibrium," NBER Working Papers 5090, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. John Isaac, 1997. "A comment on the viability of the allowance for corporate equity," Fiscal Studies, Institute for Fiscal Studies, vol. 18(3), pages 303-318, August. [Downloadable!]
  7. Hans-Werner Sinn, 1991. "Taxation and the Cost of Capital: The "Old" View, the "New" View and Another View," NBER Working Papers 3501, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Christian Keuschnigg, 1990. "The Transition to a Cash Flow Income Tax," Discussion Paper Serie A 276, University of Bonn, Germany.
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  9. Boadway, R. W. & Bruce, N., 1979. "Depreciation and interest deductions and the effect of the corporation income tax on investment," Journal of Public Economics, Elsevier, vol. 11(1), pages 93-105, February. [Downloadable!] (restricted)
  10. Boadway, Robin & Bruce, Neil, 1984. "A general proposition on the design of a neutral business tax," Journal of Public Economics, Elsevier, vol. 24(2), pages 231-239, July. [Downloadable!] (restricted)
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  11. Kotlikoff, Laurence J & Smetters, Kent A & Walliser, Jan, 1998. "Social Security: Privatization and Progressivity," American Economic Review, American Economic Association, vol. 88(2), pages 137-41, May. [Downloadable!] (restricted)
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  12. Kanniainen, Vesa & Sodersten, Jan, 1995. "The importance of reporting conventions for the theory of corporate taxation," Journal of Public Economics, Elsevier, vol. 57(3), pages 417-430, July. [Downloadable!] (restricted)
  13. Fehr, Hans, 1999. "Welfare Effects of Dynamic Tax Reforms," Beiträge zur Finanzwissenschaft, Mohr Siebeck, Tübingen, edition 1, volume 5, number urn:isbn:9783161470165, September.
  14. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Paolo Panteghini, 2005. "S-Based Taxation under Default Risk," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Paolo Panteghini, 2002. "Asymmetric Taxation under Incremental and Sequential Investment," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  3. Paolo Panteghini, 2001. "Corporate Tax Asymmetries under Investment Irreversibility," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
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