A Backward Looking Measure of the Effective Marginal Tax Burden on Investment

Johannes Becker and Clemens Fuest

No 1342, CESifo Working Paper Series from CESifo

Abstract: Forward looking measures like the well-known effective marginal tax rate developed by King and Fullerton (1984) are often criticized for not taking into account the complexity of the tax law. This paper derives a method of evaluating this kind of measure and of quantifying the bias resulting from simplifying assumptions, especially on the pattern of depreciation deductions. We apply our method to German data and find that even small estimation biases in determining the tax deductions have a large impact on the effective tax rates for marginal and inframarginal investment projects. We conclude that our method may be used to quantify exactly the difference between the actual use of depreciation deductions and the King-Fullerton assumptions and therefore to correct the conventional forward looking measures.

Keywords: effective tax rates; corporate taxation (search for similar items in EconPapers)
JEL-codes: H21 H25 (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1342

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