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Investment Decisions and Tax Revenues Under an Allowance for Corporate Equity

  • Lammersen, Lothar
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    In recent years, some European countries have relied on elements of an allow-ance for corporate equity (ACE) in the design of their tax systems. We analyse the effects of ACE-based taxation on rates of return and effective tax rates. In-vestment neutrality is lost if the imputed interest rate deviates from the market interest rate. With increasing profitability, the relative importance of the ACE compared with the statutory tax rate decreases. This might induce disadvantages for countries that compete for profitable, multinational companies. Revenue ef-fects indicate that tax rates under an ACE-based tax system should not exceed those in competing countries by much.

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    Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 02-47.

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    Date of creation: 2002
    Date of revision:
    Handle: RePEc:zbw:zewdip:671
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    1. Michael P. Devereux & R. Glenn Hubbard, 2000. "Taxing Multinationals," NBER Working Papers 7920, National Bureau of Economic Research, Inc.
    2. Michael Devereux & Rachel Griffith, 1996. "Taxes and the location of production: evidence from a panel of US multinationals," IFS Working Papers W96/14, Institute for Fiscal Studies.
    3. Michael Devereux & Rachel Griffith, 1998. "The taxation of discrete investment choices," IFS Working Papers W98/16, Institute for Fiscal Studies.
    4. Devereux, Michael P. & Griffith, Rachel, 2002. "Evaluating Tax Policy for Location Decisions," CEPR Discussion Papers 3247, C.E.P.R. Discussion Papers.
    5. Boadway, Robin & Bruce, Neil, 1984. "A general proposition on the design of a neutral business tax," Journal of Public Economics, Elsevier, vol. 24(2), pages 231-239, July.
    6. Paul A. Samuelson, 1964. "Tax Deductibility of Economic Depreciation to Insure Invariant Valuations," Journal of Political Economy, University of Chicago Press, vol. 72, pages 604.
    7. European Commission, 2001. "Company Taxation in the Internal Market," Taxation Studies 0005, Directorate General Taxation and Customs Union, European Commission.
    8. Ulrich Schreiber & Christoph Spengel & Lothar Lammersen, 2002. "Measuring The Impact Of Taxation On Investment And Financing Decisions," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 54(1), pages 2-23, January.
    9. Homburg, Stefan, 2010. "Allgemeine Steuerlehre," EconStor Books, ZBW - German National Library of Economics, number 92547, April.
    10. Michael Heinhold & Silke Hüsing & Helmut Pasch, 2000. "Consumption-Based Tax Systems And Investment Neutrality: Does The Corporation Income Tax Depreciation Method Impact Investment Capital Value?," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 52(3), pages 261-281, July.
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