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A comment on the viability of the allowance for corporate equity

Author

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  • John Isaac

Abstract

This article, acknowledging the potentially important general attractions of the allowance for corporate equity (ACE), looks at some of its more specific implications. On corporate taxes, the article looks at questions about the implied revenue-neutral rate of corporation tax (and redistribution of the tax burden); the effects on cash flow of both government and companies; and what would become a crucially important charge on capital gains. On income tax, the article comments on the implications for self-employed earnings (and also,potentially, employees); for investment income and the logically accompanying EXPEP (extended personal equity plan); and therefore for inheritance tax. For international investment, the article notes that unless and until other countries adopt an ACE as the basis for harmonisation, the interaction of the ACE and existing taxes would not always be helpful for outward investment; and on some inward investment, if the most optimistic assumptions are not borne out, the effects could be rather bleak.

Suggested Citation

  • 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.
  • Handle: RePEc:ifs:fistud:v:18:y:1997:i:3:p:303-318
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    File URL: http://www.ifs.org.uk/fs/articles/fsisaac.pdf
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    References listed on IDEAS

    as
    1. Michael Devereux & Harold Freeman, 1991. "A general neutral profits tax," Fiscal Studies, Institute for Fiscal Studies, vol. 12(3), pages 1-15, August.
    2. Sijbren Cnossen, 1996. "Company Taxes in the European Union: Criteria and Options for Reform," Fiscal Studies, Institute for Fiscal Studies, vol. 17(4), pages 67-97, November.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Paolo M. Panteghini, 2001. "Dual income taxation : the choice of the imputed rate of return," Finnish Economic Papers, Finnish Economic Association, vol. 14(1), pages 5-13, Spring.
    2. Paolo Panteghini, 2001. "On Corporate Tax Asymmetries and Neutrality," German Economic Review, Verein für Socialpolitik, vol. 2(3), pages 269-286, August.
    3. Alexander Klemm, 2007. "Allowances for Corporate Equity in Practice," CESifo Economic Studies, CESifo, vol. 53(2), pages 229-262, June.
    4. Doina Radulescu & Michael Stimmelmayr, "undated". "ACE Vs. CBIT: Which Is Better for Investment and Welfare?," EcoMod2006 272100072, EcoMod.
    5. Finke, Katharina & Heckemeyer, Jost H. & Spengel, Christoph, 2014. "Assessing the impact of introducing an ACE regime: A behavioural corporate microsimulation analysis for Germany," ZEW Discussion Papers 14-033, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. Ernst Fehr & Wolfgang Wiegard, 2001. "The Incidence of an Extended Ace Corporation Tax," CESifo Working Paper Series 484, CESifo Group Munich.
    7. Paolo M. Panteghini, 2005. "Asymmetric Taxation under Incremental and Sequential Investment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(5), pages 761-779, December.
    8. Petutschnig, Matthias & Rünger, Silke, 2017. "The effects of a tax allowance for growth and investment: Empirical evidence from a firm-level analysis," arqus Discussion Papers in Quantitative Tax Research 221, arqus - Arbeitskreis Quantitative Steuerlehre.

    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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