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The Dynamic Effects of Tax Law Asymmetries

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Alan J. Auerbach

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Abstract

Under current U.S. tax law, a distinction is made between gains and losses by businesses. Losses that must be "carried forward" are subject to two penalties: a loss of interest, and expiration after fifteen years. Previous examinations have focused on the higher expected tax payments such a tax system without "full loss offset" imposes on risky projects.This paper presents a dynamic analysis of the impact of taxation on investment when gains and losses are treated asymmetrically. The results provide a basis for analyzing recent tax changes, particularly the controversial"safe-harbor leasing" provisions of the 1981 tax legislation.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1152.

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Date of creation: Aug 1986
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Publication status: published as Auerbach, Alan J. "The Dynamic Effects of Tax Law Asymmetries." Review of Economic Studies, Vol. 53, (1986), pp. 205-225.
Handle: RePEc:nbr:nberwo:1152

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  1. James R. Hines Jr., 1998. "Investment Ramifications of Distortionary Tax Subsidies," NBER Working Papers 6615, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Don Fullerton & Yolanda K. Henderson, 1990. "The Marginal Excess Burden of Different Capital Tax Instruments," NBER Working Papers 2353, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Paolo Panteghini, 2002. "Asymmetric Taxation under Incremental and Sequential Investment," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  4. Pierre-Pascal Gendron, 1996. "Corporation Tax Asymmetries: An Oligopolistic Supergame Analysis," Working Papers ecpap-96-04, University of Toronto, Department of Economics. [Downloadable!]
  5. Rainer Niemann, 2004. "Asymmetric Taxation and Cross-Border Investment Decisions," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  6. Paolo Panteghini, 2001. "Corporate Tax Asymmetries under Investment Irreversibility," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  7. Michael Devereux & Fabio Schiantarelli, 1989. "Investment, Finacial Factors and Cash Flow: Evidence From UK Panel Data," NBER Working Papers 3116, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Andrew Benito, . "'Oscillate Wildly': asymmetries and persistence in company-level profitability," Bank of England working papers 128, Bank of England. [Downloadable!]
  9. Michael P. O'Malley, 1996. "Tax exhaustion, firm investment, and leasing; a test of the Q model of investment," Finance and Economics Discussion Series 96-31, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  10. Rainer Niemann & Corinna Treisch, 2005. "Group Taxation, Asymmetric Taxation and Cross-Border Investment Incentives in Austria," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  11. Andrew B. Lyon, 1991. "Understanding Investment Incentives Under Parallel Tax Systems: An Application to the Alternative Minimum Tax," NBER Working Papers 2912, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Don Fullerton & Marios Karayannis, 1994. "The Taxation of Income from Capital in the United States, 1980-86," NBER Working Papers 2478, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Pierre-Pascal Gendron & Gordon Anderson & Jack M. Mintz, 2003. "Corporation Tax Asymmetries and Firm-Level Investment in Canada," International Tax Program Papers 0303, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto. [Downloadable!]
  14. Don Fullerton & James B. Mackie, 1989. "Economic Efficiency in Recent Tax Reform History: Policy Reversals or Consistent Improvements?," NBER Working Papers 2593, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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