Effective tax rates and the user cost of capital when interest rates are low

John Creedy and Norman Gemmell

Economics Letters, 2017, vol. 156, issue C, 82-87

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: Effective corporate tax rates; User cost of capital; Investment (search for similar items in EconPapers)
JEL-codes: H25 H32 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:156:y:2017:i:c:p:82-87

DOI: 10.1016/j.econlet.2017.04.012

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