A New Summary Measure of the Effective Tax Rate on Investment

Roger Gordon, Laura Kalambokidis and Joel Slemrod

No 9535, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The empirical literature that seeks to measure the effective tax rate on new investment offers a striking paradox. On the one hand, summary measures of the effective tax rate on new investment are normally quite high. On the other hand, the amount of revenue actually collected from taxing capital income is apparently very low. In this paper we derive explicitly how revenue figures (under the existing system and under a hypothetical R-base tax) can be used to construct an estimate of the true effective tax rate on capital income, and how this measure and existing measures are affected by several factors, including resale of assets (churning), risk, pure profits, debt finance and arbitrage, and choice of organizational form.We conclude that our new methodology provides a very useful, but not fail-safe, approach for measuring the effective tax rate on new investment. It is much more robust than the standard measures, such as King-Fullerton marginal effective tax rates complications in the tax law. In trying to reconcile the high conventional measures of the effective tax rate with the low revenue collected, we conclude that the effective tax rate does seem to be much lower than existing measures suggest.

JEL-codes: H2 (search for similar items in EconPapers)
Date: 2003-03
New Economics Papers: this item is included in nep-mac
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

Published as Sorensen, Peter Birch (ed.) Measuring the tax burden on capital and labor CESifo Seminar Series. Cambridge and London: MIT Press, 2004.

Downloads: (external link)
http://www.nber.org/papers/w9535.pdf (application/pdf)

Related works:
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:nbr:nberwo:9535

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w9535

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().