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Decomposing the Welfare Costs of Capital Tax Distortions: The Importance of Risk Assumptions

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  • Bob Hamilton
  • Jack Mintz
  • John Whalley

Abstract

This paper analyzes the implications of alterative risk assumptions for estimates of the distorting effects of the corporate tax in Canada. These distortions are decomposed into three broad categories: inter-asset distortions; inter-industry distortions; and inter-temporal distortions. Estimates of marginal effective corporate tax rates are used in a multi-asset general equilibrium model to evaluate the costs of the various distortions, with marginal effective tax rates calculated under alterative risk assumptions. Results indicate that assessments of the relative importance of these distortions are sensitive to alterative risk assumptions used in marginal tax rate calculations. The paper also explores the sensitivity of results to key elasticity parameters in the model.

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File URL: http://www.nber.org/papers/w3628.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3628.

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Date of creation: Feb 1991
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Handle: RePEc:nbr:nberwo:3628

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  1. Gordon, Roger H & Wilson, John Douglas, 1989. "Measuring the Efficiency Cost of Taxing Risky Capital Income," American Economic Review, American Economic Association, vol. 79(3), pages 427-39, June.
  2. Mintz, Jack M, 1988. "An Empirical Estimate of Corporate Tax Refundability and Effective Tax Rates," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 225-31, February.
  3. Jack M. Mintz & Douglas D. Purvis, 1987. "Taxation and Business Activity: A Survey," Working Papers 696, Queen's University, Department of Economics.
  4. Michael J. Daly & Jack Jung, 1987. "The Taxation of Corporate Investment Income in Canada: An Analysis of Marginal Effective Tax Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 20(3), pages 555-87, August.
  5. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "General Equilibrium Analysis of Tax Policies," NBER Chapters, in: A General Equilibrium Model for Tax Policy Evaluation, pages 6-24 National Bureau of Economic Research, Inc.
  6. 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.
  7. Robin Boadway & Neil Bruce & Ken McKenzie & Jack Mintz, 1987. "Marginal Effective Tax Rates for Capital in the Canadian Mining Industry," Canadian Journal of Economics, Canadian Economics Association, vol. 20(1), pages 1-16, February.
  8. 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.
  9. Alan J. Auerbach, 1983. "Corporate Taxation in the United States," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 451-514.
  10. Hamilton, Bob & Whalley, John, 1985. "Tax treatment of housing in a dynamic sequenced general equilibrium model," Journal of Public Economics, Elsevier, vol. 27(2), pages 157-175, July.
  11. Jeremy I. Bulow & Lawrence H. Summers, 1982. "The Taxation of Risky Assets," NBER Working Papers 0897, National Bureau of Economic Research, Inc.
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Cited by:
  1. Duanjie Chen & Jack M. Mintz, 2008. "Limited Horizons: The 2008 Report on Federal and Provincial Budgetary Tax Policies," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 270, July.

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