The Cost of Holding Inventories and the Demand for Labour and Capital under Corporate Taxation

Vesa Kanniainen and Hannu Hernesniemi

Canadian Journal of Economics, 1990, vol. 23, issue 1, 226-35

Abstract: This paper derives two alternative candidates for the adjustment of the corporation tax base for the proper treatment of inventory capital. Conditions are presented when the Canadian and the Nordic tax base adjustments eliminate the efficiency losses due to inflation and the corporation tax. The model acknowledges the dual role of inventories of material inputs as a capital asset and factor of production. The distorting spillover effects on employment of other productive inputs support the desirability of the tax base adjustments suggested.

Date: 1990
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