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The Dynamic Effects of Tax Law Asymmetries

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  • Alan J. Auerbach

Abstract

Under current U.S. tax law, a distinction is made between gains and losses by businesses. Losses that must be "carried forward" are subject to two penalties: a loss of interest, and expiration after fifteen years. Previous examinations have focused on the higher expected tax payments such a tax system without "full loss offset" imposes on risky projects.This paper presents a dynamic analysis of the impact of taxation on investment when gains and losses are treated asymmetrically. The results provide a basis for analyzing recent tax changes, particularly the controversial"safe-harbor leasing" provisions of the 1981 tax legislation.

Suggested Citation

  • Alan J. Auerbach, 1983. "The Dynamic Effects of Tax Law Asymmetries," NBER Working Papers 1152, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1152
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    References listed on IDEAS

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    1. 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.
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