Effective Tax Rates and the User Cost of Capital when Interest Rates are Low

John Creedy and Norman Gemmell

No 20292, Working Paper Series from Victoria University of Wellington, Chair in Public Finance

Abstract: Interest rates are a key component of both user cost and effective tax rate measures of company taxation, and each is regularly used in empirical tests of tax impacts on investment. However, it is shown that when interest rates are low the two measures are not monotonically related. Using a simulated sample of observations, this feature is found to generate perverse estimates of the effects of taxation on the investment plans of firms.

Keywords: Interest rates; Company taxation; Business taxes; Investment (search for similar items in EconPapers)
Date: 2017
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https://ir.wgtn.ac.nz/handle/123456789/20292

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Journal Article: Effective tax rates and the user cost of capital when interest rates are low (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:vuw:vuwcpf:20292

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