Issues in the Measurement and Interpretation of Effective Tax Rates / David F. Bradford, Charles Stuart.

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Bradford, David F

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w1975.Publication details: Cambridge, Mass. National Bureau of Economic Research 1986.Description: 1 online resource: illustrations (black and white)Online resources:

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Abstract: Marginal effective tax rates on investment that are derived from the user cost of capital are nowadays widely used practically to assess the effects of capital taxation. In this paper, we examine several troublesome issues in the construction and use of marginal effective tax rates and user costs of capital. Our comments fall into two classes. In the first are concerns about the adequacy of the current generation of models of capital-market equilibrium, into which marginal effective tax rates (user costs) are incorporated. In the second are concerns about the appropriateness of the assumption, implicit and nearly universal in marginal effective tax rate calculations, that investors expect a given tax code to remain unchanged forever. We show that effects of current changes in the law on expectations about future changes may undo or even reverse the effects predicted by traditionally calculated effective tax rates.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w1975 (Browse shelf(Opens below))	Not For Loan

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July 1986.

Marginal effective tax rates on investment that are derived from the user cost of capital are nowadays widely used practically to assess the effects of capital taxation. In this paper, we examine several troublesome issues in the construction and use of marginal effective tax rates and user costs of capital. Our comments fall into two classes. In the first are concerns about the adequacy of the current generation of models of capital-market equilibrium, into which marginal effective tax rates (user costs) are incorporated. In the second are concerns about the appropriateness of the assumption, implicit and nearly universal in marginal effective tax rate calculations, that investors expect a given tax code to remain unchanged forever. We show that effects of current changes in the law on expectations about future changes may undo or even reverse the effects predicted by traditionally calculated effective tax rates.