EconPapers    
Economics at your fingertips  
 

Capital Taxation and Imperfect Competition: ACE vs. CBIT

Kurt Brekke (), Armando Garcia Pires (), Dirk Schindler () and Guttorm Schjelderup ()

No 32/2014, Discussion Paper Series in Economics from Norwegian School of Economics, Department of Economics

Abstract: This paper studies the market and welfare effects of two main tax reforms – the Corporate Business Income Tax (CBIT) and the Allowance for Corporate Equity tax (ACE). Using an imperfect-competition model for a small open economy, it is shown that the well-known neutrality property of ACE does not hold. Both corporate tax regimes distort market entry and equilibrium prices. A main result is that a small open economy should levy a positive source tax on capital in markets with free firm entry. Which tax system is better from a welfare point of view, depends on production technology, the competitive effects of ACE and CBIT, and whether entry is excessive or suboptimal at the given corporate tax rate. Imposing tax income neutrality yields a higher corporate tax rate with ACE, which increases the scope for CBIT to be welfare improving.

Keywords: Optimal corporate taxation; Corporate tax reform; Imperfect competition; ACE; CBIT. (search for similar items in EconPapers)
JEL-codes: D43 H25 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2014-11-03
New Economics Papers: this item is included in nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://brage.bibsys.no/xmlui/bitstream/handle/11250/225799/1/Discussionpaper.pdf (application/pdf)

Related works:
Journal Article: Capital taxation and imperfect competition: ACE vs. CBIT (2017) Downloads
Working Paper: Capital taxation and imperfect competition: ACE vs. CBIT (2015) Downloads
Working Paper: Capital Taxation and Imperfect Competition: ACE vs. CBIT (2014) Downloads
Working Paper: Capital Taxation and Imperfect Competition: ACE vs. CBIT (2014) Downloads
Working Paper: Capital Taxation and Imperfect Competition: ACE vs. CBIT (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:nhheco:2014_032

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Discussion Paper Series in Economics from Norwegian School of Economics, Department of Economics NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway. Contact information at EDIRC.
Bibliographic data for series maintained by Karen Reed-Larsen ().

 
Page updated 2021-10-12
Handle: RePEc:hhs:nhheco:2014_032