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An alternative corporation tax : implications for efficiency of investment and valuation of shares

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  • Vesa Kanniainen

    (University of Helsinki)

Abstract

The paper studies a corporation tax that, under certain conditions, implies that the effective marginal corporation tax rate is zero. Thus, no problem of doubletaxation arises at the margin. Second, the tax allows for adjustment of the tax base for capital risk, a property not shared by the expected economic depreciation approach. Though the mechanisms are different, the tax thus shares the major implications of the pure cash-flow corporation tax. Moreover, as it is in the case ofthe cash-flow tax, the corporation tax is capitalized in share prices. These implications arise if the credit market is not perfect enough to allow for a flexible substitution between tax debt and market debt.

Suggested Citation

  • Vesa Kanniainen, 1988. "An alternative corporation tax : implications for efficiency of investment and valuation of shares," Finnish Economic Papers, Finnish Economic Association, vol. 1(1), pages 72-81, Spring.
  • Handle: RePEc:fep:journl:v:1:y:1988:i:1:p:72-81
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