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Evaluating the minimum asset tax on corporations: an option pricing approach

  • van Wijnbergen, Sweder
  • Estache, Antonio

King-Fullerton methodology cannot assess the minimum-asset tax (MAT) because it cannot handle uncertainty. We present an alternative based on option pricing, and show how carry-over rules, depreciation conventions and uncertainty affect the MAT burden. Using Brazilian data, we show that: (a) because of the high intersectoral variance of capital intensity, the MAT does not reduce sectoral distortions; and (b) while high variance raises the MAT burden, high risk firms are not hit harder by the MAT: high-risk firms also have a high rate of return, which reduces the impact of the MAT.

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File URL: http://www.sciencedirect.com/science/article/B6V76-3V4JMG2-5/2/cd6fcc60ce8b445d2548652fc1356b34
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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 71 (1999)
Issue (Month): 1 (January)
Pages: 75-96

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Handle: RePEc:eee:pubeco:v:71:y:1999:i:1:p:75-96
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. Auerbach, Alan, 1990. "The cost of capital and investment in developing countries," Policy Research Working Paper Series 410, The World Bank.
  2. Saman Majd & Stewart C. Myers, 1985. "Valuing the Government's Tax Claim on Risky Corporate Assets," NBER Working Papers 1553, National Bureau of Economic Research, Inc.
  3. Saman Majd & Stewart C. Myers, 1987. "Tax Asymmetries and Corporate Income Tax Reform," NBER Chapters, in: Taxes and Capital Formation, pages 93-96 National Bureau of Economic Research, Inc.
  4. Schanbel, Jacques A & Roumi, Ebrahim, 1990. "A Contingent Claims Analysis of Partial Loss Offset Taxation and Risk-Taking," Public Finance = Finances publiques, , vol. 45(2), pages 304-20.
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