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Investment Decisions and Tax Revenues Under an Allowance for Corporate Equity

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  • Lammersen, Lothar
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    Abstract

    In recent years, some European countries have relied on elements of an allow-ance for corporate equity (ACE) in the design of their tax systems. We analyse the effects of ACE-based taxation on rates of return and effective tax rates. In-vestment neutrality is lost if the imputed interest rate deviates from the market interest rate. With increasing profitability, the relative importance of the ACE compared with the statutory tax rate decreases. This might induce disadvantages for countries that compete for profitable, multinational companies. Revenue ef-fects indicate that tax rates under an ACE-based tax system should not exceed those in competing countries by much. --

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    Bibliographic Info

    Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 02-47.

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    Date of creation: 2002
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    Handle: RePEc:zbw:zewdip:671

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    Keywords: Allowance for Corporate Equity; Corporate Taxation; Effective Tax Rates; Tax Revenues;

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    References

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    1. Ulrich Schreiber & Christoph Spengel & Lothar Lammersen, 2002. "Measuring The Impact Of Taxation On Investment And Financing Decisions," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 54(1), pages 2-23, January.
    2. Michael Devereux & Rachel Griffith, 1998. "The taxation of discrete investment choices," IFS Working Papers W98/16, Institute for Fiscal Studies.
    3. Devereux, Michael P & Hubbard, R Glenn, 2003. "Taxing Multinationals," International Tax and Public Finance, Springer, vol. 10(4), pages 469-87, August.
    4. Michael Heinhold & Silke Hüsing & Helmut Pasch, 2000. "Consumption-Based Tax Systems And Investment Neutrality: Does The Corporation Income Tax Depreciation Method Impact Investment Capital Value?," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 52(3), pages 261-281, July.
    5. Robin Boadway & Neil Bruce, 1982. "A General Proposition on the Design of a Neutral Business Tax," Working Papers 461, Queen's University, Department of Economics.
    6. European Commission, 2001. "Company Taxation in the Internal Market," Taxation Studies 0005, Directorate General Taxation and Customs Union, European Commission.
    7. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, vol. 68(3), pages 335-367, June.
    8. Devereux, Michael P & Griffith, Rachel, 2002. "Evaluating Tax Policy for Location Decisions," CEPR Discussion Papers 3247, C.E.P.R. Discussion Papers.
    9. 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.
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    Cited by:
    1. Rumpf, Dominik, 2008. "Zinsbereinigung des Eigenkapitals im internationalen Steuerwettbewerb: Eine kostengünstige Alternative zu Thin Capitalization Rules?," arqus Discussion Papers in Quantitative Tax Research 48, arqus - Arbeitskreis Quantitative Steuerlehre.

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