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Measuring taxes on income from capital

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  • Michael Devereux

    ()
    (Institute for Fiscal Studies and University of Oxford)

Abstract

This paper reviews how the impact of taxes on the incentive to invest in the corporate sector can be measured. The main focus of the paper is to discuss measures derived from economic theory. In empirical work, these tend to be based on the legal parameters of tax regimes, rather than on observed tax revenues or tax liabilities. A basic model is set up which yields two measures, reflecting two alternative forms of investment decision. An effective marginal tax rate is relevant for decisions concerning the scale of the capital stock. An effective average tax rate is relevant for discrete investment choices.

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Bibliographic Info

Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W03/04.

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Length: 49 pp
Date of creation: Mar 2003
Date of revision:
Handle: RePEc:ifs:ifsewp:03/04

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  1. Devereux, Michael P, 1989. "Tax Asymmetries, the Cost of Capital and Investment: Some Evidence from United Kingdom Panel Data," Economic Journal, Royal Economic Society, vol. 99(395), pages 103-12, Supplemen.
  2. Gordon, Roger H, 1985. "Taxation of Corporate Capital Income: Tax Revenues versus Tax Distortions," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 1-27, February.
  3. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-93, May.
  4. Robin Boadway & Neil Bruce & Jack Mintz, 1984. "Taxation, Inflation, and the Effective Marginal Tax Rate on Capital in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 17(1), pages 62-79, February.
  5. R. Glenn Hubbard, 1997. "Capital-Market Imperfections and Investment," NBER Working Papers 5996, National Bureau of Economic Research, Inc.
  6. Hines, James R, Jr & Rice, Eric M, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 149-82, February.
  7. Michael Devereux & Alexander Klemm, 2003. "Measuring taxes on income from capital: evidence from the UK," IFS Working Papers W03/03, Institute for Fiscal Studies.
  8. Devereux, Michael P & Griffith, Rachel, 2002. "Evaluating Tax Policy for Location Decisions," CEPR Discussion Papers 3247, C.E.P.R. Discussion Papers.
  9. Michael Devereux & Rachel Griffith, 1996. "Taxes and the location of production: evidence from a panel of US multinationals," IFS Working Papers W96/14, Institute for Fiscal Studies.
  10. Roger H. Gordon & Joel Slemrod, 1988. "Do We Collect Any Revenue from Taxing Capital Income?," NBER Chapters, in: Tax Policy and the Economy: Volume 2, pages 89-130 National Bureau of Economic Research, Inc.
  11. Rosanne Altshuler & Harry Grubert & T. Scott Newlon, 1998. "Has U.S. Investment Abroad Become More Sensitive to Tax Rates?," NBER Working Papers 6383, National Bureau of Economic Research, Inc.
  12. Motta, Massimo, 1992. "Multinational firms and the tariff-jumping argument : A game theoretic analysis with some unconventional conclusions," European Economic Review, Elsevier, vol. 36(8), pages 1557-1571, December.
  13. Roger H. Gordon & Laura Kalambokidis & Joel Slemrod, 2003. "Do We Now Collect Any Revenue From Taxing Capital Income?," NBER Working Papers 9477, National Bureau of Economic Research, Inc.
  14. Devereux, Michael P, 2003. "Taxing Risky Investment," CEPR Discussion Papers 4053, C.E.P.R. Discussion Papers.
  15. Grubert, Harry & Mutti, John, 2000. "Do Taxes Influence Where U.S. Corporations Invest?," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 825-40, December.
  16. James M. Poterba & Lawrence H. Summers, 1981. "Dividend Taxes, Corporate Investment, and "Q"," NBER Working Papers 0829, National Bureau of Economic Research, Inc.
  17. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
  18. Edwards, J S S & Keen, M J, 1984. "Wealth Maximization and the Cost of Capital: A Comment," The Quarterly Journal of Economics, MIT Press, vol. 99(1), pages 211-14, February.
  19. Robson, Mark H., 1989. "Measuring the cost of capital when taxes are changing with foresight," Journal of Public Economics, Elsevier, vol. 40(3), pages 261-292, December.
  20. 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.
  21. Jeremy I. Bulow & Lawrence H. Summers, 1982. "The Taxation of Risky Assets," NBER Working Papers 0897, National Bureau of Economic Research, Inc.
  22. Devereux, Michael, 1987. "Taxation and the Cost of Capital: The UK Experience," Oxford Review of Economic Policy, Oxford University Press, vol. 3(4), pages xvii-xxxii, Winter.
  23. Mintz, Jack M, 1990. "Corporate Tax Holidays and Investment," World Bank Economic Review, World Bank Group, vol. 4(1), pages 81-102, January.
  24. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May.
  25. Enrique G. Mendoza & Assaf Razin & Linda L. Tesar, 1994. "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," NBER Working Papers 4864, National Bureau of Economic Research, Inc.
  26. Horstmann, Ignatius J. & Markusen, James R., 1992. "Endogenous market structures in international trade (natura facit saltum)," Journal of International Economics, Elsevier, vol. 32(1-2), pages 109-129, February.
  27. 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.
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Citations

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Cited by:
  1. Francesco Menoncin & Paolo M. Panteghini, 2008. "The Johansson-Samuelson Theorem in General Equilibrium: A Rebuttal," Working Papers 0806, University of Brescia, Department of Economics.
  2. Paolo Panteghini, 2008. "Corporate Debt, Hybrid Securities and the Effective Tax Rate," CESifo Working Paper Series 2329, CESifo Group Munich.
  3. Fernando Ruiz, 2006. "Convergence de l'impôt sur les sociétés dans l’Union européenne," Économie et Prévision, Programme National Persée, vol. 173(2), pages 79-96.
  4. Dwenger, Nadja & Steiner, Viktor, 2008. "Effective profit taxation and the elasticity of the corporate income tax base: Evidence from German corporate tax return data," arqus Discussion Papers in Quantitative Tax Research 57, arqus - Arbeitskreis Quantitative Steuerlehre.
  5. Amina Lahrèche-Révil, 2006. "Who’s Afraid of Tax Competition? Harmless Tax Competition from the New European Member States," Working Papers 2006-11, CEPII research center.
  6. repec:ebl:ecbull:v:8:y:2003:i:15:p:1-7 is not listed on IDEAS
  7. Félix Domínguez Barrero & Julio López Laborda & Fernando Rodrigo Sauco, 2005. "Do Corporate and Personal Income Taxes Affect Incorporation?," Hacienda Pública Española, IEF, vol. 174(3), pages 55-86, September.

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