Adjustment costs and the neutrality of income taxes
AbstractA true income tax would not affect asset values or investment decisions for given values of cash flows and pre-tax interest rates (Samuelson, 1964). However, most so-called income taxes do not fully tax capital gains on accrual. This note shows that in the absence of adjustment costs, investment decisions are not distorted by the lack of a comprehensive tax on the capital gains on unimproved land, provided that the depreciation of improvements is allowed as a tax deduction. It also provides the intuition underlying the closely related results of Hartman (1978) and Abel (1983).
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2006-04.
Length: 16 pages
Date of creation: 2006
Date of revision:
Contact details of provider:
Postal: Crawford Building, Lennox Crossing, Building #132, Canberra ACT 0200
Phone: +61 2 6125 4705
Fax: +61 2 6125 5448
Web page: https://crawford.anu.edu.au/acde/publications/
More information through EDIRC
Capital gains tax; depreciation; income tax; investment neutrality.;
Find related papers by JEL classification:
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-05 (All new papers)
- NEP-PBE-2006-02-05 (Public Economics)
- NEP-PUB-2006-02-05 (Public Finance)
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.:
- Green, Jerry & Sheshinski, Eytan, 1978.
"Optimal Capital-Gains Taxation Under Limited Information,"
3210340, Harvard University Department of Economics.
- Green, Jerry R & Sheshinski, Eytan, 1978. "Optimal Capital-Gains Taxation under Limited Information," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1143-58, December.
- Abel, Andrew B, 1983. "Tax Neutrality in the Presence of Adjustment Costs," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 705-12, November.
- Hartman, Richard, 1978. "Investment Neutrality of Business Income Taxes," The Quarterly Journal of Economics, MIT Press, vol. 92(2), pages 245-60, May.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.