Allowances for Corporate Equity in Practice

Alexander Klemm

No 2006/259, IMF Working Papers from International Monetary Fund

Abstract: This paper provides an overview of full and partial allowance for corporate equity (ACE) tax systems in practice. In the recent past, ACE systems have been used in Austria, Croatia, and Italy. Brazil still applies a variant of such a system and Belgium introduced one this year. This paper summarizes the empirical literature on past ACE systems, and provides a theoretical and empirical assessment of the Brazilian ACE variant. The main finding is that the Brazilian reform introduced an ACE system for a minority of firms only, with the majority instead having a system of dividend deductibility. Despite the reduction in the tax preference for debt finance, capital structures have not changed much, but dividends have increased. Investment appears to have benefited from the reform, although the extent to which this was due to the new structure rather than the tax cut is unclear.

Keywords: WP; ACE system; dividend deductibility; cost of capital; equity finance; ACE tax; ACE variant (search for similar items in EconPapers)
Pages: 33
Date: 2006-11-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=19935 (application/pdf)

Related works:
Journal Article: Allowances for Corporate Equity in Practice (2007)
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:imf:imfwpa:2006/259

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().