IDEAS home Printed from
   My bibliography  Save this paper

Estimating Firm-Level Effective Marginal Tax Rates and the User Cost of Capital in New Zealand


  • Richard Fabling

    () (Motu Economic and Public Policy Research)

  • Norman Gemmell

    () (Victoria University of Wellington)

  • Richard Kneller

    () (University of Nottingham)

  • Lynda Sanderson

    () (The Treasury)


Effective marginal tax rates (EMTRs) can be very different from the statutory rate and vary across firms, reflecting such factors as the extent and nature of taxable deductions (losses, depreciation), asset and ownership structures, and debt/equity financing. We estimate firm-specific EMTRs and related user cost of capital (UCC) measures allowing for shareholder-level taxation using data for 2000-2010 from the Longitudinal Business Database. Examining distributions of various UCC measures we find substantial firm-level heterogeneity, systematic changes as a result of tax reforms between 2004 and 2011, and systematic differences between foreign-owned and domestically-owned firms. Choices among alternative UCC measures make a difference to interpretations.

Suggested Citation

  • Richard Fabling & Norman Gemmell & Richard Kneller & Lynda Sanderson, 2013. "Estimating Firm-Level Effective Marginal Tax Rates and the User Cost of Capital in New Zealand," Working Papers 13_14, Motu Economic and Public Policy Research.
  • Handle: RePEc:mtu:wpaper:13_14

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Devereux, Michael P & Griffith, Rachel, 2003. "Evaluating Tax Policy for Location Decisions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(2), pages 107-126, March.
    2. Auerbach, Alan J, 1983. "Taxation, Corporate Financial Policy and the Cost of Capital," Journal of Economic Literature, American Economic Association, vol. 21(3), pages 905-940, September.
    3. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-365, June.
    4. Mihir A. Desai & C. Fritz Foley & James R. Hines, 2004. "A Multinational Perspective on Capital Structure Choice and Internal Capital Markets," Journal of Finance, American Finance Association, vol. 59(6), pages 2451-2487, December.
    5. Peter Egger & Simon Loretz & Michael Pfaffermayr & Hannes Winner, 2009. "Firm-specific forward-looking effective tax rates," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(6), pages 850-870, December.
    6. Richard Fabling, 2009. "A Rough Guide to New Zealand's Longitudinal Business Database," Global COE Hi-Stat Discussion Paper Series gd09-103, Institute of Economic Research, Hitotsubashi University.
    7. Kenneth McKenzie & Jack Mintz, 1992. "Tax Effects on the Cost of Capital," NBER Chapters,in: Canada-U.S. Tax Comparisons, pages 189-216 National Bureau of Economic Research, Inc.
    8. Stephen Bond & Jing Xing, 2010. "Corporate taxation and capital accumulation," Working Papers 1015, Oxford University Centre for Business Taxation.
    9. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
    10. Benge, Matt, 1998. "Depreciation Provisions and Investment Incentives under Full Imputation," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 329-345, December.
    11. repec:bla:joares:v:36:y:1998:i:2:p:321-341 is not listed on IDEAS
    12. Simon Gilchrist & Egon Zakrajsek, 2007. "Investment and the Cost of Capital: New Evidence from the Corporate Bond Market," NBER Working Papers 13174, National Bureau of Economic Research, Inc.
    13. Kenneth McKenzie & Jack Mintz & Kimberly Scharf, 1997. "Measuring Effective Tax Rates in the Presence of Multiple Inputs: A Production Based Approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(3), pages 337-359, July.
    14. Schaller, Huntley, 2006. "Estimating the long-run user cost elasticity," Journal of Monetary Economics, Elsevier, vol. 53(4), pages 725-736, May.
    15. Benge, Matt, 1997. "Taxes, Corporate Financial Policy and Investment Decisions in Australia," The Economic Record, The Economic Society of Australia, vol. 73(220), pages 1-15, March.
    16. Alan J. Auerbach, 1979. "Wealth Maximization and the Cost of Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 433-446.
    17. Fabling, Richard & Sanderson, Lynda, 2013. "Exporting and firm performance: Market entry, investment and expansion," Journal of International Economics, Elsevier, vol. 89(2), pages 422-431.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Richard Fabling & David C Maré, 2015. "Production function estimation using New Zealand’s Longitudinal Business Database," Working Papers 15_15, Motu Economic and Public Policy Research.
    2. Creedy, John & Gemmell, Norman, 2015. "Taxation and the User Cost of Capital : An Introduction," Working Paper Series 4236, Victoria University of Wellington, Chair in Public Finance.
    3. Lynda Sanderson, 2013. "Sources of international investment data in the Longitudinal Business Database," Treasury Working Paper Series 13/31, New Zealand Treasury.
    4. Richard Fabling & Richard Kneller & Lynda Sanderson, 2015. "The Impact of Tax Changes on the Short-run Investment Behaviour of New Zealand Firms," Treasury Working Paper Series 15/05, New Zealand Treasury.

    More about this item


    User cost of capital; tax reform; EMTR; New Zealand;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mtu:wpaper:13_14. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maxine Watene). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.