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Evaluating the minimum asset tax on corporations: an option pricing approach?

  • Antonio Estache
  • Sweder van Wijnbergen

King-Fullerton methodology cannot assess the minimum-asset tax (MAT) because it cannot handle uncertainty. We present an alternative based on option pricing, and show how carry-over rules, depreciation conventions and uncertainty affect the MAT burden. Using Brazilian data, we show that: (a) because of the high intersectoral variance of capital intensity, the MAT does not reduce sectoral distortions; and (b) while high variance raises the MAT burden, high risk firms are not hit harder by the MAT: high-risk firms also have a high rate of return, which reduces the impact of the MAT.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/13378.

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Date of creation: 1999
Date of revision:
Publication status: Published in: Journal of Public Economics (1999) v.77 n° 1
Handle: RePEc:ulb:ulbeco:2013/13378
Contact details of provider: Postal: CP135, 50, avenue F.D. Roosevelt, 1050 Bruxelles
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  1. Schanbel, Jacques A & Roumi, Ebrahim, 1990. "A Contingent Claims Analysis of Partial Loss Offset Taxation and Risk-Taking," Public Finance = Finances publiques, , vol. 45(2), pages 304-20.
  2. Auerbach, Alan, 1990. "The cost of capital and investment in developing countries," Policy Research Working Paper Series 410, The World Bank.
  3. Saman Majd & Stewart C. Myers, 1985. "Valuing the Government's Tax Claim on Risky Corporate Assets," NBER Working Papers 1553, National Bureau of Economic Research, Inc.
  4. Saman Majd & Stewart C. Myers, 1987. "Tax Asymmetries and Corporate Income Tax Reform," NBER Chapters, in: Taxes and Capital Formation, pages 93-96 National Bureau of Economic Research, Inc.
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