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Inflation and the Taxation of Capital Income in the Corporate Sector

  • Martin Feldstein
  • Lawrence H. Summers

This detailed examination of the effect of inflation on the taxation of capital used by nonfinancial corporations considers not only the tax paid by the corporations them- selves but also the tax paid by the individuals and institutions that provide capital to the corporate sector. Although corporations deduct nominal interest payments that exceed real interest, the additional taxes that lenders pay slightly exceed the tax saving by corporate borrowers. Our calculations indicate that inflation raised the 1977 tax burden on corporate sector capital income by more than $32 billion, a 50 percent increase in the total tax burden.

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File URL: http://www.nber.org/papers/w0312.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0312.

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Date of creation: Jan 1979
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Publication status: published as Feldstein, Martin and Summers, Lawrence. "Inflation and the Taxation of Capital Income in the Corporate Sector." National Tax Journal, Vol. 32, No. 4, (December 1979), pp. 445-470.
Handle: RePEc:nbr:nberwo:0312
Note: PE
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  1. Sheshinski, Eytan & Feldstein, Martin & Green, Jerry & Auerbach, Alan, 1978. "Inflation and Taxes in a Growing Economy with Debt and Equity Finance," Scholarly Articles 3203645, Harvard University Department of Economics.
  2. Martin Feldstein, 1983. "Fiscal Policies, Inflation, and Capital Formation," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 61-80 National Bureau of Economic Research, Inc.
  3. Martin Feldstein & Lawrence Summers, 1978. "Inflation, Tax Rules, and the Long Term-Interest Rate," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(1), pages 61-110.
  4. Alan J. Auerbach, 1980. "Share Valuation and Corporate Equity Policy," NBER Working Papers 0255, National Bureau of Economic Research, Inc.
  5. Aaron, Henry J, 1976. "Inflation and the Income Tax," American Economic Review, American Economic Association, vol. 66(2), pages 193-99, May.
  6. David F. Bradford, 1979. "The Incidence and Allocation Effects of a Tax on Corporate Distributions," NBER Working Papers 0349, National Bureau of Economic Research, Inc.
  7. Michael C. Lovell, 1978. "The Profit Picture: Trends and Cycles," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(3), pages 769-789.
  8. Lawrence H. Summers, 1978. "Tax Policy in a Life Cycle Model," NBER Working Papers 0302, National Bureau of Economic Research, Inc.
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