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The Implications of Risk and Irreversibility for the Measurement of Marginal Effective Tax Rates of Capital

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Author Info

  • McKenzie, K.J.

Abstract

The implications of risk and irreversibility for the measurement of marginal effective tax rates on capital are examined. It is shown that, when capital is irreversible, the marginal effective tax rate is an increasing function of systematic and unsystematic capital and income risk. The tax system may, thus, distort investments in risky capital to a much greater extent than is implied by previous research that ignored irreversibilities. Marginal effective tax rate calculations based upon the Canadian corporate tax system are provided.

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Bibliographic Info

Paper provided by Calgary - Department of Economics in its series Papers with number 137.

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Length: 34 pages
Date of creation: 1992
Date of revision:
Handle: RePEc:fth:calgar:137

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Postal: THE UNIVERSITY OF CALGARY, DEPARTMENT OF ECONOMICS, 2500 UNIVERSITY DRIVE N.W. CALGARY ALBERTA CANADA T2N 1N4.
Phone: (403) 220-5857
Fax: (403) 282-5262
Web page: http://econ.ucalgary.ca/
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Keywords: investments ; tax policy;

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Cited by:
  1. Alowin Moes, 1999. "Effective Tax Rates on Capital in New Zealand - Changes 1972-1998," Treasury Working Paper Series 99/12, New Zealand Treasury.
  2. Paolo Panteghini, 2002. "Asymmetric Taxation under Incremental and Sequential Investment," CESifo Working Paper Series 717, CESifo Group Munich.
  3. Faig, Miquel & Shum, Pauline, 1999. "Irreversible investment and endogenous financing: An evaluation of the corporate tax effects," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 143-171, February.
  4. Paolo Panteghini, 2001. "On Corporate Tax Asymmetries and Neutrality," German Economic Review, Verein für Socialpolitik, vol. 2(3), pages 269-286, 08.
  5. Norman Schürhoff, 2005. "Capital Gains Taxes, Irreversible Investment, and Capital Structure," FAME Research Paper Series rp131, International Center for Financial Asset Management and Engineering.
  6. Miquel Faig & Pauline Shum, 1997. "INVESTMENT IRREVERSIBILITY AND ENDOGENOUS FINANCING: An Evaluation of the Corporate Tax Effects," Working Papers faig-97-02, University of Toronto, Department of Economics.
  7. Miquel Faig & Pauline Shum, 1996. "Irreversible Investment, Financing Choice and Asymmetric Corporate Taxes," Working Papers faig-96-01, University of Toronto, Department of Economics.
  8. Kenneth McKenzie, 2008. "Measuring tax incentives for R&D," International Tax and Public Finance, Springer, vol. 15(5), pages 563-581, October.
  9. Annick Hespel & Michel Mignolet, 2000. "Tax-aided financial services companies and the cost of capital," Fiscal Studies, Institute for Fiscal Studies, vol. 21(3), pages 349-374, September.
  10. Jack Mintz, 1995. "Corporation tax: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 16(4), pages 23-68, November.
  11. Kenneth McKenzie & Jack Mintz & Kimberly Scharf, 1997. "Measuring Effective Tax Rates in the Presence of Multiple Inputs: A Production Based Approach," International Tax and Public Finance, Springer, vol. 4(3), pages 337-359, July.

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