Evaluating the Minimum Asset Tax on Corporations: An Option Pricing Approach

Antonio Estache and Sweder van Wijnbergen

No 684, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: King-Fullerton methodology cannot assess the minimum-asset tax (MAT) because it cannot handle uncertainty. We present an alternative based on option pricing, and show how carry-over rules, depreciation conventions and uncertainty affect the MAT burden. Using Brazilian data, we show that: (a) because of the high intersectoral variance of capital intensity, the MAT does not reduce sectoral distortions; and (b) while high variance raises the MAT burden, high risk firms are not hit harder by the MAT: high-risk firms also have a high rate of return, which reduces the impact of the MAT.

Keywords: Brazil; Minimum Asset Taxes; Option Pricing; Tax Incentives; Uncertainty (search for similar items in EconPapers)
JEL-codes: H21 H25 (search for similar items in EconPapers)
Date: 1992-06
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Evaluating the minimum asset tax on corporations: an option pricing approach (1999)
Working Paper: Evaluating the minimum asset tax on corporations: an option pricing approach? (1999)
Working Paper: Evaluating the Minimum Asset Tax on Corporations: An Option Pricing Approach' (1999)
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