The Taxation of Discrete Investment Choices
Traditional analysis of the taxation of income from capital has focused on the impact of tax on marginal investment decisions; the principal impact of tax on investment is through the cost of capital, and is generally measured by an effective marginal tax rate. In this paper, we consider cases in which investors face a choice between two or more mutually exclusive projects, both of which are expected to earn at least the minimum required rate of return. Examples include the location decisions of multinationals, firms choice of technology, and the choice of investment projects in the presence of binding financial constraints. In these cases the choice depends on the effective average tax rate. We propose a measure of this rate and demonstrate its relationship to the conventional effective marginal tax rate. Estimates of both are presented and compared for domestic and international investment in Germany, Japan, the UK and USA between 1979 and 1997.
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|Date of creation:||1998|
|Publication status:||Published in International Tax and Public Finance, 2003 Vol. 10, pages 107-126.|
|Contact details of provider:|| Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom|
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|Order Information:|| Postal: Department of Economics, Keele University, Keele, Staffordshire ST5 5BG - United Kingdom|
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- Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February.
- Julie Collins & Douglas Shackelford, 1995. "Corporate domicile and average effective tax rates: The cases of Canada, Japan, the United Kingdom, and the United States," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(1), pages 55-83, February.
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- J. S. S. Edwards & M. J. Keen, 1984. "Wealth Maximization and the Cost of Capital: A Comment," The Quarterly Journal of Economics, Oxford University Press, vol. 99(1), pages 211-214.
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