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The Tax Paradox and Weak Tax Neutrality

Ramon Lopez (), Pablo Gutiérrez C. and Eugenio Figueroa
Authors registered in the RePEc Author Service: Pablo A. Gutiérrez C. ()

Working Papers from University of Chile, Department of Economics

Abstract: We introduce the concept of weak tax neutrality which establishes that the relationship between the tax rate and the user cost of capital may be non-monotonic. We show that most existing corporate tax systems allow for weak neutrality. That is, given the tax allowances permitted by these systems, it is possible that neutrality may arise for at least one positive corporate tax rate. Moreover, we show the practical relevance of weak neutrality in realistic situations where there are several asset types and heterogeneous levels of firms’ debt ratios.

Pages: 40 pages
Date: 2019-03
New Economics Papers: this item is included in nep-pbe
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