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Understanding Investment Incentives Under Parallel Tax Systems: An Application to the Alternative Minimum Tax

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Andrew B. Lyon

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Abstract

The first section of this paper introduces the topic. The next section shows that many parallel tax systems share common features and constructs a general model of the cost of capital based on the Hall-Jorgenson (1967) cost of capital formula. Section 3 presents conditions under which a parallel tax system maintains investment neutrality. In general, the neutrality conditions are sensitive to the assumed arbitrage conditions and source of finance. Section 4 presents findings on the effect of the corporate ANT on investment incentives. It is shown that these investment incentives are sensitive to the length of time the firm is subject to the ANT, the timing of the Mt spell relative to the date the investment is acquired, and the source of financing. Investment incentives for firms experiencing temporary spells on the ANT can be very different from those for firms permanently subject to the ANT. The final section briefly summarizes the paper

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2912.

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Date of creation: Apr 1991
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Publication status: published as "Investment Incentives Under The Alternative Minimum Tax." From National Tax Journal, Vol. XLIII, No. 4, pp. 451-465, (December 1990).
Handle: RePEc:nbr:nberwo:2912

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Paul A. Samuelson, 1964. "Tax Deductibility of Economic Depreciation to Insure Invariant Valuations," Journal of Political Economy, University of Chicago Press, vol. 72, pages 604. [Downloadable!] (restricted)
  2. Don Fullerton & Andrew B. Lyon, 1989. "Tax Neutrality and Intangible Capital," NBER Working Papers 2430, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Auerbach, Alan J, 1986. "The Dynamic Effects of Tax Law Asymmetries," Review of Economic Studies, Blackwell Publishing, vol. 53(2), pages 205-25, April. [Downloadable!] (restricted)
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