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Generalised R-based and S-based taxes under uncertainty

  • Bond, Stephen R.
  • Devereux, Michael P.

This paper considers the relationship between two general neutral business tax structures, which we label the Ѧirm tax' and the ѳhareholder taxҮ The well-known R-based and S-based cash flow taxes, analysed by Meade (1978), are special cases of these two taxes. We demonstrate the neutrality of both taxes in the presence of uncertainty, and characterise the tax rules required in the event of default and wind-up. Our analysis provides the first proof of the neutrality of the S-based cash flow tax and the Allowance for Corporate Equity (ACE) corporation tax under uncertainty. We also discuss implementation and tax avoidance issues.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 87 (2003)
Issue (Month): 5-6 (May)
Pages: 1291-1311

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Handle: RePEc:eee:pubeco:v:87:y:2003:i:5-6:p:1291-1311
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  1. King, Mervyn A., 1975. "Taxation, corporate financial policy, and the cost of capital : A comment," Journal of Public Economics, Elsevier, vol. 4(3), pages 271-279, August.
  2. Bonds, Stephen R. & Devereux, Michael P., 1995. "On the design of a neutral business tax under uncertainty," Journal of Public Economics, Elsevier, vol. 58(1), pages 57-71, September.
  3. Boadway, Robin & Bruce, Neil, 1984. "A general proposition on the design of a neutral business tax," Journal of Public Economics, Elsevier, vol. 24(2), pages 231-239, July.
  4. Stiglitz, Joseph E., 1973. "Taxation, corporate financial policy, and the cost of capital," Journal of Public Economics, Elsevier, vol. 2(1), pages 1-34, February.
  5. Fane, G., 1987. "Neutral taxation under uncertainty," Journal of Public Economics, Elsevier, vol. 33(1), pages 95-105, June.
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