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A Superior Hybrid Cash-Flow Taxon Corporations

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  • Howell H. Zee

Abstract

This paper proposes a new hybrid cash-flow tax on corporations that, on one hand, taxes only excess corporate profits as they accrue, and, on the other hand, treats real and financial transactions neutrally. It is, therefore, a superior tax compared to the cash-flow tax on real transactions that seems to have gained common acceptance. The hybrid tax is a modified version of the cash-flow tax on real and financial transactions combined. The modification involves replacing expensing of fixed assets with normal depreciation allowances, but the undepreciated value of fixed assets is carried forward with interest at the opportunity cost of equity capital.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/117.

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Length: 25
Date of creation: 01 May 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/117

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Related research

Keywords: Income taxes; Revenues; Subsidies; Tax reforms; Taxation; fixed assets; tax rate; rate of return; tax liability; tax reform; tax base; tax credit; tax credits; tax system; tax burden; interest expenditure; fiscal studies; tax rates; investors; tax competition; tax wedge; business tax; rates of return; depreciation allowances; tax payment; tax payments; government revenue; investment risks; tax revenue; fiscal affairs; tax policy; revenue collection; corporate tax; tax base resulting; tax systems; tax administration; corporate tax systems; domestic investment; interest income; business taxes; foreign investment; fiscal affairs department; flat tax; foreign investors; public finance; tax relief; investment projects; investment allowances; interest payments; private investment; retained earnings; distribution of dividends; fiscal federalism; accelerated depreciation;

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  1. David F. Bradford, 1998. "Transition to and Tax Rate Flexibility in a Cash-Flow Type Tax," NBER Working Papers 6465, National Bureau of Economic Research, Inc.
  2. Bradford, David F, 2003. "Addressing the Transfer-Pricing Problem in an Origin-Basis X Tax," International Tax and Public Finance, Springer, vol. 10(5), pages 591-610, September.
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