The Implications of Risk and Irreversibility for the Measurement of Marginal Effective Tax Rates on Capital
The implications of risk and irreversibility for the measurement of marginal effective tax rates on capital are examined. It is shown that, when capital is irreversible, the marginal effective tax rate is an increasing function of systematic and unsystematic capital and income risk. The tax system may, thus, distort investments in risky capital to a much greater extent than is implied by previous research that ignored irreversibilities. Marginal effective tax rate calculations based upon the Canadian corporate tax system are provided.
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Volume (Year): 27 (1994)
Issue (Month): 3 (August)
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