Nonlinear Taxation of Risky Assets and Investment, With Application to Mining

Jeffrey Mackie-Mason

No 2631, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: An intertemporal capital asset valuation approach is applied to analyzing the effects of nonlinear taxes on asset values and optimal investment decisions. The method is quite general, and is illustrated both analytically and numerically, The paper studies the effects of nonlinearities in the corporate income tax, including the percentage depletion allowance, on mine values and investment decisions. Although the tax policies are found to have the expected effects on asset values, the effects on investment decisions are sometimes perverse. An increase in the income tax rate may encourage investment; an increase in the depletion allowance subsidy may discourage investment.

Date: 1988-06
Note: PE
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Published as "Some Nonlinear Tax Effects on Asset Values and Investment Decisions Under Uncertainty," Journal of Public Economics, Vol. 42, pp. 301-328, August 1990.

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