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Effective Average Tax Rates for Permanent Investment

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  • Alexander D Klemm

Abstract

This paper extends the effective average tax rate (EATR) developed in Devereux and Griffith (2003) by relaxing the assumption of a one-period perturbation in the capital stock. Instead it allows a permanent investment. While this may appear a small change, it has important implications. First, it allows the EATR to be calculated in the presence of tax holidays, which are an important part of tax systems, especially in developing countries. Second, it reveals an interesting feature of the original EATR: despite the assumption of a one-period investment, the original measure is informative about long-term investments, thanks to the assumption of pooled depreciation. Without this assumption-which is justifiable in a few countries only- the EATR based on one-period perturbation in the capital stock would be less useful for analyzing medium and long-term investments.

Suggested Citation

  • Alexander D Klemm, 2008. "Effective Average Tax Rates for Permanent Investment," IMF Working Papers 08/56, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:08/56
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    Cited by:

    1. David Nguyen-Thanh & Christoph Strupat, 2012. "Is the Burden Too Small? – Effective Tax Rates in Ghana," Ruhr Economic Papers 0389, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    2. repec:zbw:rwirep:0389 is not listed on IDEAS
    3. repec:taf:rjapxx:v:15:y:2010:i:2:p:166-191 is not listed on IDEAS
    4. Nguyen-Thanh, David & Strupat, Christoph, 2012. "Is the Burden Too Small? – Effective Tax Rates in Ghana," Ruhr Economic Papers 389, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    5. Alexander Klemm, 2010. "Causes, benefits, and risks of business tax incentives," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(3), pages 315-336, June.
    6. S. Abbas & Alexander Klemm, 2013. "A partial race to the bottom: corporate tax developments in emerging and developing economies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(4), pages 596-617, August.
    7. Alexander D Klemm & Dennis P Botman & Reza Baqir, 2008. "Investment Incentives and Effective Tax Rates in the Philippines; A Comparison With Neighboring Countries," IMF Working Papers 08/207, International Monetary Fund.

    More about this item

    Keywords

    Investment; effective tax rates; discrete investment; tax holidays; tax rates; taxation; personal taxes; capital stock;

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