Policy Forum: The Impact of a Rise in Inflation on Marginal Effective Tax Rates on Corporate Capital

Kenneth J. McKenzie ()
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Kenneth J. McKenzie: Department of Economics, University of Calgary

Canadian Tax Journal, 2023, vol. 71, issue 2, 405-413

Abstract: The purpose of this article is to discuss the impact of inflation on the incentive effects of the corporate income tax in Canada. Illustrative calculations of the marginal effective tax rate (METR) on capital are provided under two inflation scenarios: 2 percent and 4 percent. It is shown that while there are counteracting effects, on balance higher inflation tends to increase the METR on capital. More importantly, higher inflation increases the variability in METRs across assets and sectors. This increase in interasset and intersectoral distortions has important efficiency implications for the Canadian economy.

Keywords: Corporate income taxes; effective rates; efficiency; inflation (search for similar items in EconPapers)
Date: 2023
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DOI: 10.32721/ctj.2023.71.2.pf.mckenzie

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