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This paper extends the effective average tax rate (EATR) developed in Devereux and Griffith (2003) by relaxing the assumption of a one-period perturbation in the capital stock. Instead it allows a permanent investment. While this may appear a small change, it has important implications. First, it allows the EATR to be calculated in the presence of tax holidays, which are an important part of tax systems, especially in developing countries. Second, it reveals an interesting feature of the original EATR: despite the assumption of a one-period investment, the original measure is informative about long-term investments, thanks to the assumption of pooled depreciation. Without this assumption-which is justifiable in a few countries only- the EATR based on one-period perturbation in the capital stock would be less useful for analyzing medium and long-term investments.
Investments --- Taxation --- Tax rates --- Tax tables --- Investing --- Investment management --- Portfolio --- Finance --- Disinvestment --- Loans --- Saving and investment --- Speculation --- Econometric models. --- Rates and tables. --- Investments: General --- Taxation, Subsidies, and Revenue: General --- Investment --- Capital --- Intangible Capital --- Capacity --- Public finance & taxation --- Macroeconomics --- Depreciation --- Effective tax rate --- Tax holidays --- Average effective tax rate --- Marginal effective tax rate --- Tax administration and procedure --- Tax incentives --- Canada
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This paper describes, and where possible tentatively quantifies, likely tax spillovers from the U.S. corporate income tax reform that was part of the broader 2017 tax reform. It calculates effective tax rates under various assumptions, showing among other findings, how the interest limitation and the Foreign Derived Intangible Income provision can raise or reduce rates. It tentatively estimates that under constant policies elsewhere, the rate cut will reduce tax revenue from multinationals in other countries by on average 1.6 to 5.2 percent. If other countries react in line with historical reaction functions, the revenue loss from multinationals rises to an average of 4.5 to 13.5 percent. The paper also discusses profit-shifting, real location, and policy reactions from the more complex features of the reform.
Public Finance --- Taxation --- Corporate Taxation --- Business Taxes and Subsidies --- International Fiscal Issues --- International Public Goods --- Taxation, Subsidies, and Revenue: General --- Public finance & taxation --- Corporate & business tax --- Corporate income tax --- Effective tax rate --- Average effective tax rate --- Revenue administration --- Marginal effective tax rate --- Taxes --- Tax policy --- Tax administration and procedure --- Corporations --- Revenue --- United States
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The 2017 Tax Cuts and Jobs Act (TCJA) sharply reduced effective corporate income tax rates on equity-financed US investment. This paper examines the reform’s impact on US inbound foreign direct investment (FDI) and investment in property, plant and equipment (PPE) by foreign-owned US companies. We first model effective marginal and average tax rates (EMTRs and EATRs) by country, industry, and method of finance, and then use those tax rates to calculate the tax semi-elasticities of inbound FDI and PPE investment. We find that both PPE investment and FDI financed with retained earnings responded positively to the TCJA reform, but FDI financed with new equity or debt did not. In country-level PPE regressions, inclusion of macroeconomic controls renders tax rate coefficients insignificant, suggesting that the increase in PPE investment after TCJA was driven by general economic growth. In regressions of FDI financed with retained earnings, however, tax coefficients were robust to inclusion of macroeconomic controls. As the literature predicts, EATRs have a greater impact on cross-border investment than EMTRs. Country-by-industry regressions showed a larger effect of taxes on PPE investment than aggregate country-level regressions, but industry-level tax rates appear to have no effect on earnings retention.
Macroeconomics --- Economics: General --- Taxation --- Exports and Imports --- Corporate Taxation --- International Investment --- Long-term Capital Movements --- Business Taxes and Subsidies --- Taxation, Subsidies, and Revenue: General --- Economic & financial crises & disasters --- Economics of specific sectors --- Public finance & taxation --- Finance --- Corporate & business tax --- Effective tax rate --- Tax policy --- Foreign direct investment --- Balance of payments --- Marginal effective tax rate --- Average effective tax rate --- Corporate income tax --- Taxes --- Currency crises --- Informal sector --- Economics --- Tax administration and procedure --- Investments, Foreign --- Corporations --- United States
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Using recent expenditure survey data, this paper investigates the incidence of all indirect taxes in Brazil. It applies a novel approach to estimate the effective tax rate by computing the specific cumulative taxes levied on thousands of items available in the data set. The findings show that for every RD 100 of indirect tax revenue, the first and second deciles pay RD 2 and RD 3, respectively, while the ninth and tenth deciles pay RD 16 and RD 33, respectively. Meanwhile, indirect taxes represent between 23 and 45 percent of income among the poorest households. Simulations of a value-added tax reform suggest that it could be inequality reducing both horizontally and vertically. A flat value-added tax accompanied by excise taxes on fuel items, alcohol, and tobacco would also lead to lower decreases in expenditures. Households would spend 2.8 percent less on average, with those in the bottom (top) decile spending 7.0 percent (1.5 percent) less.
Distributional Impact --- Effective Tax Rate --- Fiscal Incidence --- Indirect Tax --- Inequality --- Macroeconomics and Economic Growth --- Public Sector Development --- Tax Burden --- Tax Reform --- Taxation --- Taxation and Subsidies --- Value Added Tax
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The structure of Japan's corporate income tax system is broadly in line with those of other G7 countries. However, relatively high marginal and average effective tax rates prompt the question of whether adjustments should be considered to meet the objectives of promoting growth, investment and competitiveness in a revenue neutral manner. This paper discusses key issues and trade-off's related to changes in the corporate income tax system. It does not provide recommendations, but raises issues that could hopefully serve as useful inputs to the ongoing discussion and tax debate in Japan.
Corporations --- Taxation --- Investments: General --- Public Finance --- Corporate Taxation --- Business Taxes and Subsidies --- Taxation, Subsidies, and Revenue: General --- Investment --- Capital --- Intangible Capital --- Capacity --- Corporate & business tax --- Public finance & taxation --- Macroeconomics --- Corporate income tax --- Corporate taxes --- Average effective tax rate --- Depreciation --- Revenue administration --- Taxes --- Marginal effective tax rate --- Tax policy --- National accounts --- Tax administration and procedure --- Saving and investment --- Revenue --- Income tax --- Japan
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This paper explores the revenue-raising aspect of progressive taxation and derives, on the basis of a simple model, the optimal degree of tax progressivity where the tax revenue is used exclusively to finance (perfectly) targeted transfers to the poor. The paper shows that not only would it be optimal to finance the targeted transfers with progressive taxation, but that the optimal progressivity increases unambiguously with growing income inequality. This conclusion holds up under different assumptions about the efficiency cost of taxation and society’s aversion to inequality.
Macroeconomics --- Taxation --- Efficiency --- Optimal Taxation --- National Government Expenditures and Welfare Programs --- Aggregate Factor Income Distribution --- Personal Income, Wealth, and Their Distributions --- Taxation, Subsidies, and Revenue: General --- Public finance & taxation --- Income inequality --- Personal income --- Average effective tax rate --- Progressive taxation --- Marginal effective tax rate --- Income distribution --- Income --- Tax administration and procedure
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Although the empirical literature has long struggled to identify the impact of taxes on corporate financial structure, a recent boom in studies offers ample support for the debt bias of taxation. Yet, studies differ considerably in effect size and reveal an equally large variety in methodologies and specifications. This paper sheds light on this variation and assesses the systematic impact on the size of the effects. We find that, typically, a one percentage point higher tax rate increases the debt-asset ratio by between 0.17 and 0.28. Responses are increasing over time, which suggests that debt bias distortions have become more important.
Corporate debt --- Corporations --- Debt --- Debt financing (Corporations) --- Econometric models. --- Finance --- Taxation --- Corporate Taxation --- Taxation, Subsidies, and Revenue: General --- Business Taxes and Subsidies --- Tax Evasion and Avoidance --- Public finance & taxation --- Corporate & business tax --- Corporate income tax --- Tax elasticity --- Tax arrears management --- Marginal effective tax rate --- Average effective tax rate --- Tax administration and procedure --- United States
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The paper provides a critical review of the literature on the concept of progressivity in the taxation of petroleum and mineral resources and offers a fresh perspective on its purpose and measurement. Regressive taxes, such as royalties, exist to satisfy policy objectives other than revenue maximization, such as achieving early revenues, while rent-based or profit-sensitive fiscal instruments must be designed with progressive marginal rates to maximize government revenues. Hence, the emphasis should be placed on tax rate progression of the direct taxation of profit or rent, rather than progressivity in the overall government take. However, as regressive taxes, by their very nature, tend to be distortionary, the optimal degree of progression in the rent- or profit-tax rates must take these distortions into account. The central ideas are illustrated with a simple analytical model in which a second-best optimal tax rate schedule on profit is characterized in the presence of the tax distortions caused by the regressive taxes. Some practical implications of the analysis are discussed.
Public Finance --- Taxation --- Efficiency --- Optimal Taxation --- Business Taxes and Subsidies --- Hydrocarbon Resources --- Taxation, Subsidies, and Revenue: General --- Personal Income and Other Nonbusiness Taxes and Subsidies --- Public finance & taxation --- Progressive taxation --- Revenue administration --- Rent tax --- Average effective tax rate --- Marginal effective tax rate --- Tax policy --- Taxes --- Tax administration and procedure --- Revenue --- Income tax --- Norway
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This paper assembles a new dataset on corporate income tax regimes in 50 emerging and developing economies over 1996-2007 and analyzes their impact on corporate tax revenues and domestic and foreign investment. It computes effective tax rates to take account of complicated special regimes, such as partial tax holidays, temporarily reduced rates and increased investment allowances. There is evidence of a partial race to the bottom: countries have been under pressure to lower tax rates in order to lure and boost investment. In the case of standard tax systems (i.e. tax rules applying under normal circumstances), the effective tax rate reductions have not been larger than those witnessed in advanced economies, and revenues have held up well over the sample period. However, a race to the bottom is evident among special regimes, most notably in the case of Africa, creating effectively a parallel tax system where rates have fallen to almost zero. Regression analysis reveals higher tax rates adversely affect domestic investment and FDI, but do raise revenues in the short-run.
Corporations --- Business corporations --- C corporations --- Corporations, Business --- Corporations, Public --- Limited companies --- Publicly held corporations --- Publicly traded corporations --- Public limited companies --- Stock corporations --- Subchapter C corporations --- Business enterprises --- Corporate power --- Disincorporation --- Stocks --- Trusts, Industrial --- Corporate income tax --- Corporate taxes --- Corporation income tax --- Corporation tax --- Federal corporation tax --- Franchises, Taxation of --- Taxation of franchises --- Taxation --- Taxation. --- Finance --- Valuation --- Public Finance --- Corporate Taxation --- Fiscal Policy --- Business Taxes and Subsidies --- Taxation, Subsidies, and Revenue: General --- Public finance & taxation --- Corporate & business tax --- Revenue administration --- Effective tax rate --- Average effective tax rate --- Marginal effective tax rate --- Taxes --- Tax policy --- Tax administration and procedure --- Revenue --- Hong Kong Special Administrative Region, People's Republic of China
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Schemes of residual profit allocation (RPA) tax multinationals by allocating their ‘routine’ profits to countries in which their activities take place and sharing their remaining ‘residual’ profit across countries on some formulaic basis. They have recently and rapidly come to prominence in policy discussions, yet almost nothing is known about their impact on revenue, investment and efficiency. This paper explores these issues, conceptually and empirically. It finds residual profits to be substantial, but concentrated in a relatively few MNEs, headquartered in few countries. The impact on tax revenue of reallocating excess profits under RPA, while adverse for investment hubs, appears beneficial for lower income countries even when the formula allocates by destination-based sales. The impact on investment incentives is ambiguous and specific both to countries and MNE groups; only if the rate of tax on routine profits is low does aggregate efficiency seem likely to increase.
Macroeconomics --- Public Finance --- Taxation --- Corporate Taxation --- Investments: Stocks --- Business Taxes and Subsidies --- Taxation, Subsidies, and Revenue: General --- Aggregate Factor Income Distribution --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Public finance & taxation --- Corporate & business tax --- Investment & securities --- Marginal effective tax rate --- Corporate income tax --- Revenue administration --- Average effective tax rate --- Income --- Tax policy --- Taxes --- National accounts --- Stocks --- Financial institutions --- Tax administration and procedure --- Corporations --- Revenue --- United States
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