Download Investment, Vol. 3: Lifting the Burden: Tax Reform, the Cost by Dale W. Jorgenson, Kun-Young Yun PDF

By Dale W. Jorgenson, Kun-Young Yun

This e-book provides a complete therapy of the cost-of-capital strategy for studying the commercial influence of tax coverage. This technique has supplied an highbrow impetus for reforms of capital source of revenue taxation within the usa and world wide. the price of capital and the marginal powerful tax price are mixed with estimates of substitution probabilities by way of companies and families in studying tax and spending courses. This makes it attainable to guage tax reforms and alterations in executive spending. reports of the industrial effect of tax regulations have taken types. First, the price of capital has been included into funding capabilities in macroeconomic types, that are used to version the short-run responses to tax coverage adjustments. moment, the cost-of-capital procedure has been built-in into utilized general-equilibrium versions utilized in comparing the long-run fiscal results of tax reforms.The cost-of-capital procedure indicates avenues for tax reform. One could preserve the source of revenue tax base of the prevailing U.S. tax method, yet could equalize tax burdens on all kinds of resources in addition to regular and marginal tax premiums on hard work source of revenue. the opposite may alternative intake for source of revenue as a tax base, whereas equating typical and marginal tax premiums on hard work source of revenue.

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Extra resources for Investment, Vol. 3: Lifting the Burden: Tax Reform, the Cost of Capital, and U.S. Economic Growth

Example text

Our overall conclusion is that the cost of capital and the closely related concept of the marginal effective tax rate have provided an important intellectual impetus for tax reform. Effective tax rates at both corporate and personal levels are now available for many countries around the world. International comparisons of tax reforms have provided extensive illustrations of successful applications of the cost of capital approach. The new frontier for analysis of tax and spending programs is to combine the cost of capital and the marginal effective tax rate with estimates of substitution possibilities by businesses and households.

We introduce the concept of an effective tax rate within a highly simplified system for taxation of income from capital. We define a tax wedge as the difference between the remuneration of capital before taxes, which corresponds to the marginal product of capital, and the compensation after taxes available to holders of financial claims on the firm. The effective tax rate is the ratio of this tax wedge to the marginal product. S. 1 Corporate capital income is taxed at both corporate and individual levels, noncorporate capital income is taxed only at the individual level, and household capital income is not taxed at either level.

Our overall conclusion is that the cost of capital and the closely related concept of the marginal effective tax rate have provided an important intellectual impetus for tax reform. Effective tax rates at both corporate and personal levels are now available for many countries around the world. International comparisons of tax reforms have provided extensive illustrations of successful applications of the cost of capital approach. The new frontier for analysis of tax and spending programs is to combine the cost of capital and the marginal effective tax rate with estimates of substitution possibilities by businesses and households.

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