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dc.contributor.authorLongobardi, Ernestoen_US
dc.contributor.authorPolito, Vitoen_US
dc.date.accessioned2011-07-14en_US
dc.date.accessioned2012-11-02T14:29:43Z-
dc.date.available2012-11-02T14:29:43Z-
dc.date.issued2011en_US
dc.identifier.urihttp://hdl.handle.net/10419/65826-
dc.description.abstractThis paper studies the effectiveness of corporate tax incentives in reducing the effective tax rate (ETR) on income from capital to stimulate business investment during economic downturns. We focus on tax rate incentives (TRIs), such as corporate tax rate cuts, and tax base incentives (TBIs), such as increased capital allowances. The standard economic theory states that TRIs reduce the ETR by decreasing tax payments on corporate profits. TBIs instead reduce the ETR as they defer firms tax payments, in turn increasing the present value of dividend distribution. However, this theory does not consider that, in reality, firms face accounting constraints preventing any distribution of cash flows arising from TBIs. For this reason, the standard economic analysis overstates the benefit of any TBI relative to that of TRIs. The paper incorporates accounting constraints on dividend policy into the model for the computation of the ETR and employs the new model to recalculate ETRs in the US and in the UK during 1980-2010. The empirical results confirm that the benefit of TBIs is significantly overstated by the standard theory, and tax rate cuts are more effective in reducing the ETR. We show that this result holds regardless of the form of investment finance (retained earning, new equity and debt), the type capital asset (building and plant and machinery), the level of capital income taxation (corporate and shareholders), and the value of accounting depreciation relative to economic depreciation.en_US
dc.language.isoengen_US
dc.publisherCardiff University, Cardiff Business School Cardiffen_US
dc.relation.ispartofseriesCardiff Economics Working Papers E2011/15en_US
dc.subject.jelH3en_US
dc.subject.ddc330en_US
dc.subject.keywordcapital income taxationen_US
dc.subject.keyworddividend policyen_US
dc.subject.keywordeffective marginal tax ratesen_US
dc.subject.keywordfinancial constraintsen_US
dc.subject.stwKonjunkturen_US
dc.subject.stwVerschuldungsrestriktionen_US
dc.subject.stwUnternehmensbesteuerungen_US
dc.subject.stwDividendeen_US
dc.subject.stwOptimale Besteuerungen_US
dc.subject.stwGro├čbritannienen_US
dc.subject.stwUSAen_US
dc.titleCapital income taxation incentives during economic downturns: Re-thinking theory and evidenceen_US
dc.typeWorking Paperen_US
dc.identifier.ppn664239455en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
Appears in Collections:Cardiff Economics Working Papers, Cardiff Business School, Cardiff University

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