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Generalised R-based and S-based taxes under uncertainty

  • Steve Bond

    ()

    (Institute for Fiscal Studies and Nuffield College, Oxford)

  • Michael Devereux

    ()

    (Institute for Fiscal Studies and University of Oxford)

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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Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W99/09.

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Length: 29 pp.
Date of creation: Feb 1999
Date of revision:
Handle: RePEc:ifs:ifsewp:99/09
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  1. Steve Bond & Michael Devereux, 1993. "On the design of a neutral business tax under uncertainty," IFS Working Papers W93/01, Institute for Fiscal Studies.
  2. 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.
  3. 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.
  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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