Investment Decisions and Tax Revenues Under an Allowance for Corporate Equity

Lammersen, Lothar

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URN: urn:nbn:de:bsz:180-madoc-3988
Document Type: Working paper
Year of publication: 2002
The title of a journal, publication series: ZEW Discussion Papers
Volume: 02-47
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: H21 H25 ,
Subject headings (SWD): Europa , Steuer , Profit , Effizienz
Abstract: In recent years, some European countries have relied on elements of an allowance 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. Investment 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 effects indicate that tax rates under an ACE-based tax system should not exceed those in competing countries by much.
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