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Methods of Mitigating Double Taxation

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  • Lindhe, Tobias

    (Department of Economics)

Abstract

This paper presents a comprehensive overview of existing methods of mitigating double taxation of corporate income within a standard cost of capital model. Two of the most well-known and most utilized methods, the imputation and the split rate systems, do not mitigate double taxation in corporations where the marginal investment is financed with retained earnings. However, all methods are effective when the marginal investment is financed with new share issues. The corporate tax rate, fiscal allowances, allocation to periodization funds and allocation to tax equalization reserves (or allowance for corporate equity) are effective instruments, independent of the sources of financing. The paper also discusses why so many different methods have been employed in mitigating double taxation.

Suggested Citation

  • Lindhe, Tobias, 2002. "Methods of Mitigating Double Taxation," Working Paper Series 2002:8, Uppsala University, Department of Economics.
    • Handle: RePEc:hhs:uunewp:2002_008
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    References listed on IDEAS

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    1. Hans-Werner Sinn, 1991. "Taxation and the Cost of Capital: The "Old" View, the "New" View, and Another View," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 25-54, National Bureau of Economic Research, Inc.
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    4. Sodersten, Jan, 1977. " Approaches to the Theory of Capital Cost: An Extension," Scandinavian Journal of Economics, Wiley Blackwell, vol. 79(4), pages 478-484.
    5. Auerbach, Alan J., 1984. "Taxes, firm financial policy and the cost of capital: An empirical analysis," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 27-57.
    6. A. J. Auerbach & M. Feldstein (ed.), 2002. "Handbook of Public Economics," Handbook of Public Economics, Elsevier, edition 1, volume 4, number 4.
    7. Södersten, Jan, 1977. "Approaches to the Theory of Capital Cost: An Extension," Working Paper Series 10, Research Institute of Industrial Economics.
    8. A. J. Auerbach & M. Feldstein (ed.), 2002. "Handbook of Public Economics," Handbook of Public Economics, Elsevier, edition 1, volume 3, number 3.
    9. Sodersten, Jan, 1982. " Accelerated Depreciation and the Cost of Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 84(1), pages 111-115.
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    Citations

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    Cited by:

    1. Kari, Seppo, 2017. "The effects of tax-deductible reserves on investment incentives," Working Papers 93, VATT Institute for Economic Research.
    2. Budryte, Alge, 2005. "Corporate income taxation in Lithuania in the context of the EU," Research in International Business and Finance, Elsevier, vol. 19(2), pages 200-228, June.

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    More about this item

    Keywords

    Corporate Taxation; Double Taxation; Cost of Capital;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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