A New Summary Measure of the Effective Tax Rate on Investment / Roger Gordon, Laura Kalambokidis, Joel Slemrod.

Format:

Book

Author/Creator:

Gordon, Roger.

Contributor:

National Bureau of Economic Research.

Kalambokidis, Laura.

Slemrod, Joel.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9535.

NBER working paper series no. w9535

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

The empirical literature that seeks to measure the effective tax rate on new investment offers a striking paradox. On the one hand, summary measures of the effective tax rate on new investment are normally quite high. On the other hand, the amount of revenue actually collected from taxing capital income is apparently very low. In this paper we derive explicitly how revenue figures (under the existing system and under a hypothetical R-base tax) can be used to construct an estimate of the true effective tax rate on capital income, and how this measure and existing measures are affected by several factors, including resale of assets (churning), risk, pure profits, debt finance and arbitrage, and choice of organizational form.We conclude that our new methodology provides a very useful, but not fail-safe, approach for measuring the effective tax rate on new investment. It is much more robust than the standard measures, such as King-Fullerton marginal effective tax rates complications in the tax law. In trying to reconcile the high conventional measures of the effective tax rate with the low revenue collected, we conclude that the effective tax rate does seem to be much lower than existing measures suggest.

Notes:

Print version record

March 2003.