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Taxation, Inflation and the User Cost of Capital in Canada

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Author Info

  • Robin Boadway
  • Neil Bruce
  • Jack Mintz

Abstract

This paper analyzes corporate and personal income taxes and inflation on the cost of investing in depreciable and inventory capital in Canada in 1963-78. Changes in rates of inflation and corporate tax rates theoretically have an ambiguous effect on the cost of capital. Tax depreciation and FIFO allowances based on historical prices can increase capital costs with inflation and decrease capital costs with corporate tax rates. Assuming all capital is owned by Canadian residents we find the gross of tax return to capital has not changed much in Canada over time for all types of capital considered. Effective tax rates were also measured, these vary considerably by type of capital and over time

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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 506.

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Length: 51
Date of creation: 1982
Date of revision:
Handle: RePEc:qed:wpaper:506

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Cited by:
  1. Alan J. Auerbach, 1982. "Taxation, Corporate Financial Policy and the Cost of Capital," NBER Working Papers 1026, National Bureau of Economic Research, Inc.
  2. Don Fullerton, 1983. "Which Effective Tax Rate?," NBER Working Papers 1123, National Bureau of Economic Research, Inc.

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