Accrual Equivalent Marginal Tax Rates for Personal Financial Assets

Graham Glenday and James Davies

Canadian Journal of Economics, 1990, vol. 23, issue 1, 189-209

Abstract: This paper shows that the appropriate approach to calculating accrual equivalent marginal tax rates for nonaccrual taxes on personal financial investments is the relative-reduction-in-the-internal-rate-of-return approach, which equates the present values from the after-tax returns from an investment under an accrual and a nonaccrual tax. Detailed comparisons are made with alternative approaches proposed by Boadway, Bruce, and Mintz (1984) and by King and Fullerton (1984) for the capital gains tax. Both find accrual tax rates that equate the present values of accrual and actual tax revenues. Fundamental problems are found with both alternative approaches.

Date: 1990
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