Analysis of Distortional Effects of Taxation on Financial and Investment Decision Based on the Methodology of Effective Tax Rates Calculation

Analýza distorzních účinků vlivu zdanění na finanční a investiční rozhodování na základě metody výpočtu efektivní daňové sazby

Jaroslava Holečková

Český finanční a účetní časopis, 2012, vol. 2012, issue 2, 126-138

Abstract: The objective of this paper is to examine the use of effective tax rates on different types of capital assets and sources of financing and to assess on the base of calculation of the tax wedges the degree to which taxation affects the incentive to undertake investment. The methodology used to calculate effective tax rates on investments is based on an approach developed by the King and Fullerton methodology (1984), which has become the most widely accepted method adopted to calculating effective tax rates (tax wedges). The tax wedge will vary according to the type of asset: machinery, buildings, inventory and the type of finance sources: new equity, debt, retained earnings. Effective tax rates take into account not only the statutory corporate tax rate, but also other aspects of the tax system which determine the amount of tax paid and profitability of investment, a consideration of personal taxes. The tax system that seeks to raise revenue in ways that avoid distortion effects is considered neutral tax system. The aim of this article has been to assess on the base of calculation of the tax wedges the degree to which taxation affects the incentive to undertake investment in the Czech Republic (comparison in years 2000 and 2010).

Keywords: Effective tax rate; Tax wedge; Tax neutrality; Distortion effect; Efektivní daňová sazba; Daňový klín; Daňová neutralita; Distorzní efekt (search for similar items in EconPapers)
JEL-codes: G30 H21 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.18267/j.cfuc.317

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