IDEAS home Printed from https://ideas.repec.org/p/mil/wpdepa/1995-09.html
   My bibliography  Save this paper

Tax Neutrality in the King-Fullerton Framework, Investment Externalities, and Growth

Author

Listed:
  • Massimo FLORIO

Abstract

The King-Fullerton (1984) approach to the measurement of effective marginal rates of taxation on capital income has been applied extensively. The empirical literature confirms that the dispersion of effective tax rates, both within each country and among countries, is wide. However no test has been proposed of the impact on investment of these findings. The paper tests the conjecture proposed by King and Fullerton that standard deviation of effective tax wedges and investment or growth are inversely correlated. We find that international evidence does not support the conjecture: while investment and tax wedges are negatively correlated, as expected, the standard deviation of tax wedges seems to be positively correlated to investment. We propose the following interpretation of this result: a substantial part of the variance of effective marginal rates is explained by an implicit subsidy to equipment investment, and this policy may be justified by De Long-Summers (1992) results or by the view that this type of investment have more impact on growth than other types (such as buildings and inventories). In some cases also a partial deduction of interest rates may be rational when capital markets are rationed. Thus it may be simplistic and misleading to use King- Fullerton statistics as yardsticks for tax reforms leading to uniformity of effective marginal tax rates.

Suggested Citation

  • Massimo FLORIO, 1995. "Tax Neutrality in the King-Fullerton Framework, Investment Externalities, and Growth," Departmental Working Papers 1995-09, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano, revised 15 May 2007.
  • Handle: RePEc:mil:wpdepa:1995-09
    as

    Download full text from publisher

    File URL: http://wp.demm.unimi.it/files/wp/1995/DEMM-1995_009wp.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Massimo Florio & Anna Giunta, 1998. "Planning Contracts in Southern Italy, 1986-1997: a Prelimary Evaluation," Departmental Working Papers 1998-04, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    2. Giuseppe Bognetti, 1999. "Nuove forme di gestione dei servizi pubblici," Departmental Working Papers 1999-04, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.

    More about this item

    Keywords

    capital income taxation; King-Fullerton framework; tax neutrality and growth;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mil:wpdepa:1995-09. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: DEMM Working Papers (email available below). General contact details of provider: https://edirc.repec.org/data/damilit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.