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This paper analyzes the effects of the 2014-15 Chilean tax reform on firms' incentives to retain earnings and finance their operations with equity versus debt. The analysis comprises a comparison with the situation of the pre-reform period, and draws some conclusions about firms' valuation. The approach consists of analyzing the effects of the tax reform on total taxes paid and cash flows received by investors. Although the final effects are specific to the firm and investor, as they depend on the firm's dividend payout ratio and each investor's personal income tax rate, the results show that in general the reform reduced the value of firms and lessened the incentives to retain earnings. The simulations show that the majority of firms would choose the accrual or "attributed" tax-based system. However, if the latter is not permitted, firms will choose debt over equity. The cash-based or semi-integrated system becomes the preferred option only when elusion (or tax avoidance) is possible.

Debt --- Equity --- Income Tax Rate --- Investment Incentives --- Retained Earnings --- Tax Reform

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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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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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This paper develops a general theory of optimal income taxation with multiple dimensions of agent heterogeneity. The main technical hurdle in developing this theory is the possibility that individuals have multiple optimal incomes. Using a perturbation approach, optimal tax formulas are derived that account for the possibility that individuals have multiple optima and, hence, account for the possibility that individuals jump between their optimal income levels when the tax schedule is perturbed. The magnitude of these effects is quantified, thereby augmenting the optimal tax formulas from Saez (2001) with additional "jumping effect" terms. The paper provides a partial characterization of when individuals with multiple optimal incomes may exist under the optimal tax schedule. Finally, the paper derives a new methodology to simulate optimal income tax schedules with multidimensional heterogeneity. This method is implemented numerically, showing that individuals with multiple optimal income levels can exist under the optimal tax schedule.

Labor Markets --- Labor Supply --- Macroeconomics and Economic Growth --- Marginal Tax Rate --- Optimal Tax --- Productivity --- Public Sector Development --- Social Protections and Labor --- Tax Model --- Taxation --- Taxation and Subsidies

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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