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Dual income taxation : the choice of the imputed rate of return

  • Paolo M. Panteghini

    ()

    (Dipartimento di Scienze Economiche, Università di Brescia, Italy)

In this article we study a crucial aspect of a Dual Tax System: the choice of the imputed rate of return. Under interest rate uncertainty, its optimal value will be shown to depend on the nature of investment. Following Fane (1987), if investment is reversible, the imputation rate ensuring neutrality is proportional to the interest rate on default-free bonds. If, instead, investment is irreversible, the imputation rate must be higher, in order to compensate for the discouraging effects of irreversibility.

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Article provided by Finnish Economic Association in its journal Finnish Economic Papers.

Volume (Year): 14 (2001)
Issue (Month): 1 (Spring)
Pages: 5-13

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Handle: RePEc:fep:journl:v:14:y:2001:i:1:p:5-13
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  1. 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.
  2. Jonathan B. Berk, 1999. "A Simple Approach for Deciding When to Invest," American Economic Review, American Economic Association, vol. 89(5), pages 1319-1326, December.
  3. Ben S. Bernanke, 1980. "Irreversibility, Uncertainty, and Cyclical Investment," NBER Working Papers 0502, National Bureau of Economic Research, Inc.
  4. Steve Bond & Michael Devereux, 1993. "On the design of a neutral business tax under uncertainty," IFS Working Papers W93/01, Institute for Fiscal Studies.
  5. David K. Backus & Silverio Foresi & Chris Telmer, . "Discrete time models of bond pricing," GSIA Working Papers 251, Carnegie Mellon University, Tepper School of Business.
  6. Fane, G., 1987. "Neutral taxation under uncertainty," Journal of Public Economics, Elsevier, vol. 33(1), pages 95-105, June.
  7. Michael Devereux & Harold Freeman, 1991. "A general neutral profits tax," Fiscal Studies, Institute for Fiscal Studies, vol. 12(3), pages 1-15, August.
  8. Sandmo, Agnar, 1979. "A note on the neutrality of the cash flow corporation tax," Economics Letters, Elsevier, vol. 4(2), pages 173-176.
  9. 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.
  10. John Isaac, 1997. "A comment on the viability of the allowance for corporate equity," Fiscal Studies, Institute for Fiscal Studies, vol. 18(3), pages 303-318, August.
  11. Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1992. "Waiting to Invest: Investment and Uncertainty," The Journal of Business, University of Chicago Press, vol. 65(1), pages 1-29, January.
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