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Tax Asymmetries, the Cost of Capital and Investment: Some Evidence from United Kingdom Panel Data


  • Devereux, Michael P


A measure of the cost of capital is developed that incorporates the dynamic effects of tax changes and tax asymmetries. Estimates of the cost of capital are made using an unbalanced panel of 1987 U.K. quoted companies over the period 1971 to 1984. There is wide cross-sectional variation in the cost of capital. The measure is used in estimating an equation where this cross-sectional variation is found to be a significant determinant of the level of company investment. Copyright 1989 by Royal Economic Society.

Suggested Citation

  • Devereux, Michael P, 1989. "Tax Asymmetries, the Cost of Capital and Investment: Some Evidence from United Kingdom Panel Data," Economic Journal, Royal Economic Society, vol. 99(395), pages 103-112, Supplemen.
  • Handle: RePEc:ecj:econjl:v:99:y:1989:i:395:p:103-12

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    References listed on IDEAS

    1. Alan J. Auerbach & Laurence J. Kotlikoff, 1983. "National Savings, Economic Welfare, and the Structure of Taxation," NBER Chapters,in: Behavioral Simulation Methods in Tax Policy Analysis, pages 459-498 National Bureau of Economic Research, Inc.
    2. Judd, Kenneth L, 1987. "A Dynamic Theory of Factor Taxation," American Economic Review, American Economic Association, vol. 77(2), pages 42-48, May.
    3. Brock, William A & Turnovsky, Stephen J, 1981. "The Analysis of Macroeconomic Policies in Perfect Foresight Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(1), pages 179-209, February.
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    Cited by:

    1. Michael P. Devereux, 2003. "Measuring Taxes on Income from Capital," CESifo Working Paper Series 962, CESifo Group Munich.
    2. John Creedy & Norman Gemmell, 2010. "Behavioural responses to corporate profit taxation," Hacienda Pública Española, IEF, vol. 193(2), pages 109-130, June.
    3. Daniel Dreßler & Michael Overesch, 2013. "Investment impact of tax loss treatment—empirical insights from a panel of multinationals," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(3), pages 513-543, June.
    4. Keser, Claudia & Kimpel, Gerrit & Oestreicher, Andreas, 2014. "The CCCTB option: An experimental study," Center for European, Governance and Economic Development Research Discussion Papers 199, University of Goettingen, Department of Economics.
    5. Kalamov, Zarko Y. & Runkel, Marco, 2016. "On the implications of introducing cross-border loss-offset in the European Union," Journal of Public Economics, Elsevier, vol. 144(C), pages 78-89.
    6. Pierre-Pascal Gendron & Gordon Anderson & Jack M. Mintz, 2003. "Corporation Tax Asymmetries and Firm-Level Investment in Canada," International Tax Program Papers 0303, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
    7. Jack Mintz, 1995. "Corporation tax: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 16(4), pages 23-68, November.
    8. John Creedy & Norman Gemmell, 2011. "Corporation tax asymmetries: effective tax rates and profit shifting," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(4), pages 422-435, August.
    9. Michael P. O'Malley, 1996. "Tax exhaustion, firm investment, and leasing; a test of the Q model of investment," Finance and Economics Discussion Series 96-31, Board of Governors of the Federal Reserve System (U.S.).
    10. Giampaolo Arachi & Federico Biagi, 2005. "Taxation, Cost of Capital and Investment: Do Tax Asymmetries Matter?," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 64(2-3), pages 295-322, November.
    11. Hasan Bakhshi & Andrew Haldane & Neal Hatch, 1998. "Some costs and benefits of price stability in the UK," Bank of England working papers 78, Bank of England.
    12. Michael P. O'Malley, "undated". "Tax Exhaustion, Firm Investment, and Leasing: A Test of the Q Model of Investment," Finance and Economics Discussion Series 1996-31, Board of Governors of the Federal Reserve System (U.S.).
    13. Claudia Keser & Gerrit Kimpel & Andreas Oestreicher, 2014. "The CCCTB option an experimental study," CIRANO Working Papers 2014s-24, CIRANO.
    14. Keser, Claudia & Kimpel, Gerrit & Oestreicher, Andreas, 2014. "The CCCTB option an experimental study," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100490, Verein für Socialpolitik / German Economic Association.
    15. Claudia Keser & Gerrit Kimpel & Andreas Oestreicher, 2016. "Would a CCCTB mitigate profit shifting?," CIRANO Working Papers 2016s-29, CIRANO.

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