The taxation of discrete investment choices

Traditional analysis of the taxation of income from capital has focused on the impact of tax on marginal investment decisions; the principal impact of tax on investment is through the cost of capital, and is generally measured by an effective marginal tax rate. In this paper, we consider cases in which investors face a choice between two or more mutually exclusive projects, both of which are expected to earn at least the minimum required rate of return. Examples include the location decisions of multinationals, firms' choice of technology, and the choice of investment projects in the presence of binding financial constraints. In these cases the choice depends on the effective average tax rate. We propose a measure of this rate and demonstrate its relationship to the conventional effective marginal tax rate. Estimates of both are presented and compared for domestic and international investment in Germany, Japan, the UK and USA between 1979 and 1997

How has the UK corporation tax raised so much revenue?

We analyse a puzzle in the UK corporation tax: by both historic and international standards corporation tax revenues have been high while the statutory rate has been low. Possible explanations include the following: changes in tax law that may have increased effective tax rates; other factors such as higher profitability or different macro-economic conditions may have led to higher effective tax rates; and finally the size of the corporate sector may have increased. We find evidence for all three explanations, although none would be sufficient in itself. To the extent that higher profits, particularly financial sector profits may have led to high revenues, there are doubts as to whether revenues will continue to be so strong

An applied analysis of ACE and CBIT reform in the EU

We assess the quantitative impact of two reforms of the corporation tax that would eliminate the differential treatment of debt and equity. The two reforms are: the allowance for corporate equity (ACE), and the comprehensive business income tax (CBIT). We investigate the impact of these reforms on various decision margins, using an applied general equilibrium model for the EU calibrated with recent empirical elasticities. The results suggest that, if governments adjust statutory corporate tax rates to balance their budgets, profit shifting and discrete location render CBIT more attractive for most individual European countries. European coordination makes a joint ACE more, and a joint CBIT less, efficient. A combination of ACE and CBIT is always welfare improving.

The impact of taxation and financial factors on company investment: an examination using UK panel data

This thesis examines the impact of taxation and financial factors on the level of investment in fixed assets by quoted manufacturing companies in the United Kingdom between 1971 and 1986. Its most important theme is that there exist substantial differences between companies in the way that they are affected by both taxation and financial factors. The empirical work therefore uses individual company accounting and stock market data (described in Appendix A) together with a detailed model of the corporation tax system (described in Appendix B) in order to exploit cross sectional as well as time series variation. Chapters 2 and 3 investigate the role played by taxation in the investment decision. Part of the cross sectional variation in taxation arises through 'tax exhaustion', caused by the asymmetric treatment of taxable profit and loss in UK corporation tax and restrictions on the use of the imputation system. Two investment equations, the first based on Tobin's Q and the second on the cost of capital in an Euler equation framework are developed from the same neoclassical model of the firm which explicitly models tax exhaustion and the role played by expectations. Each is a forward-looking model, which could be used for the purposes of simulating the effects of tax reform on investment, whether the reform is announced or unannounced, permanent or temporary. The results confirm that tax does play a role in the determination of investment, although, for various reasons, the precise effect is difficult to quantify. They also suggest that the Q model is a poor means of assessing the impact of taxation on investment and that it is dominated by the second model. Chapters 2 and 3 also consider the impact of taxation on company financial policy, and, in particular consider various regimes in which the company may find itself which depend on tax exhaustion and agency costs of debt. The stability of these regimes is more complex than commonly argued in the literature. The appropriate definition of the cost of capital is also developed further, under similar conditions, and a matrix of nine possible values is constructed, depending on the marginal source of finance in this period and the next period. Chapter 4 discusses the role played by financial factors. A model with legal constraints on financial behaviour and agency costs on debt is developed which predicts that, for all firms, investment depends on the level of cash generated, as well as Tobin's Q. The importance of cash flow for firms of different size and age is investigated. The results support the hypothesis that cash flow is a significant determinant of investment for all firms. Cash flow has the highest impact for large and new firms

Corporate tax harmonization in the EU

This paper explores the economic consequences of proposed EU reforms for a common consolidated corporate tax base. The reforms replace separate accounting with formula apportionment as a way to allocate corporate tax bases across countries. To assess the economic implications, we use a numerical CGE model for Europe. It encompasses several decision margins of firms,such as marginal investment, FDI decisions, and multinational profit shifting. The simulations suggest that consolidation does not yield substantial welfare gains for Europe. The variation of effects across countries is large and depends on the choice of the apportionment formula. Consolidation with formula apportionment does not weaken incentives for tax competition. Tax competition instead offers a rationale for rate harmonisation, in addition to base harmonisation.

A systematic review of maternal smoking during pregnancy and fetal measurements with meta-analysis

Background Maternal smoking during pregnancy is linked to reduced birth weight but the gestation at onset of this relationship is not certain. We present a systematic review of the literature describing associations between maternal smoking during pregnancy and ultrasound measurements of fetal size, together with an accompanying meta-analysis. Methods Studies were selected from electronic databases (OVID, EMBASE and Google Scholar) that examined associations between maternal smoking or smoke exposure and antenatal fetal ultrasound measurements. Outcome measures were first, second or third trimester fetal measurements. Results There were 284 abstracts identified, 16 papers were included in the review and the metaanalysis included data from eight populations. Maternal smoking was associated with reduced second trimester head size (mean reduction 0.09 standard deviation (SD) [95% CI 0.01, 0.16]) and femur length (0.06 [0.01, 0.10]) and reduced third trimester head size (0.18SD [0.13, 0.23]), femur length (0.27 SD [0.21, 0.32]) and estimated fetal weight (0.18 SD [0.11, 0.24]). Higher maternal cigarette consumption was associated with a lower z score for head size in the second (mean difference 0.09 SD [0, 0.19]) and third (0.15 SD [0.03, 0.26]) trimesters compared to lower consumption. Fetal measurements were not reduced for those whose mothers quit before or after becoming pregnant compared to mothers who had never smoked. Conclusions Maternal smoking during pregnancy is associated with reduced fetal measurements after the first trimester, particularly reduced head size and femur length. These effects may be attenuated if mothers quit or reduce cigarette consumption during pregnancy

Sollen multinationale Unternehmen weniger Steuern bezahlen?

Der Aufsatz diskutiert die Verbreitung steuergesetzlicher Maßnahmen, die multinationalen Firmen eine bevorzugte steuerliche Behandlung einräumen. Der Schwerpunkt liegt dabei auf der Analyse der Aufkommens- und Wohlfahrtswirkungen von international koordinierten Maßnahmen, diese Steuervorteile zu begrenzen. Zuvor wird die empirische Evidenz zu den allgemeinen Entwicklungen der Unternehmensbesteuerung und zu den Steuervorteilen multinationaler Unternehmen zusammengefasst. Abstract The background for the analysis is the proliferation of tax regimes that discriminate in favour of multinational firms. The first part of the paper gives an empirical overview of the development of corporate taxation and of the tax advantages granted to multinational firms. The second part summarises the results of the theoretical literature analysing the revenue and welfare effects of coordinated measures to abolish preferential tax regimes. JEL Klassifikation: H25, F23, H8

Tax competition and the impact on capital flows

SIGLEAvailable from British Library Document Supply Centre- DSC:9350.1215(KU-DE-WP--94/07) / BLDSC - British Library Document Supply CentreGBUnited Kingdo

On efficiency criteria in the international taxation of income from capital

SIGLEAvailable from British Library Document Supply Centre- DSC:9350.1215(KU-DE-WP--93-8) / BLDSC - British Library Document Supply CentreGBUnited Kingdo