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Business and Economics > Investments: Stocks

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Cover IMF Working Papers
Tax Elasticity Estimates for Capital Stocks in Canada
Jean-François Wen
,
Fatih Yilmaz
, and
Danea Trejo
The paper provides estimates of the long-run, tax-adjusted, user cost elasticity of capital (UCE) in a small open economy, exploiting three sources of variation in Canadian tax policy: across provinces, industries, and years. Estimates of the UCE with Canadian data are less prone to the endogeneity problems arising from the effects of tax policy changes on the interest rate or on the price of capital equipment. Reductions in the federal corporate income tax rate during the early 2000s for service industries but not for manufacturing, which already benefited from a preferential tax rate, contribute to the identification of the UCE. To capture the long-run relationship between the capital stock and the user cost of capital, an error correction model (ECM) is estimated. Supplementary results are obtained from a distributed lag model in first differences (DLM). With the ECM, our baseline UCE for machinery and equipment (M&E) is -1.312. The corresponding semi-elasticity of the stock of M&E with respect to the METR is about -0.2, suggesting, for example, that a 5 percentage point reduction in the METR, say from 15 to 10 percent, would in the long run generate an increase of 1.0 percent in the stock of M&E. The UCE for non-residential construction is statistically insignificantly different from zero.
Keywords:
WP; cost of capital; open economy; user cost of capital; rate of return; UCE estimate; investment tax credit; depreciation rate; Metr data; elasticities decrease; provincial sales tax; differenced GDP terms; machinery and equipment; Marginal effective tax rate; Stocks; Corporate income tax; Real interest rates; Tax allowances; Global; Capital Taxation; User Cost of Capital Elasticity
Cover IMF Working Papers
Exploring Residual Profit Allocation
Sebastian Beer
,
Ruud A. de Mooij
,
Mr. Shafik Hebous
,
Mr. Michael Keen
, and
Ms. Li Liu
Schemes of residual profit allocation (RPA) tax multinationals by allocating their ‘routine’ profits to countries in which their activities take place and sharing their remaining ‘residual’ profit across countries on some formulaic basis. They have recently and rapidly come to prominence in policy discussions, yet almost nothing is known about their impact on revenue, investment and efficiency. This paper explores these issues, conceptually and empirically. It finds residual profits to be substantial, but concentrated in a relatively few MNEs, headquartered in few countries. The impact on tax revenue of reallocating excess profits under RPA, while adverse for investment hubs, appears beneficial for lower income countries even when the formula allocates by destination-based sales. The impact on investment incentives is ambiguous and specific both to countries and MNE groups; only if the rate of tax on routine profits is low does aggregate efficiency seem likely to increase.
Keywords:
WP; routine profits; capital stock; closed economy; cost function; earnings before interest and taxes; Residual Profit Allocation; International Corporate Taxation; Multinational Firms; profit shifting; residual profits; RPA scheme; purged profits; Marginal effective tax rate; Corporate income tax; Income; Stocks; Global
Cover Policy Papers
Tax Policy, Leverage and Macroeconomic Stability
International Monetary Fund
Risks to macroeconomic stability posed by excessive private leverage are significantly amplified by tax distortions. ‘Debt bias’ (tax provisions favoring finance by debt rather than equity) has increased leverage in both the household and corporate sectors, and is now widely recognized as a significant macroeconomic concern. This paper presents new evidence of the extent of debt bias, including estimates for banks and non-bank financial institutions both before and after the global financial crisis. It presents policy options to alleviate debt bias, and assesses their effectiveness. The paper finds that thin capitalization rules restricting interest deductibility have only partially been able to address debt bias, but that an allowance for corporate equity has generally proved effective. The paper concludes that debt bias should feature prominently in countries’ tax reform plans in the coming years.
Keywords:
PP; debt shifting; asset ratio; cost of capital; cash flow; debt vulnerability; interest deductibility; debt bias; income tax; double taxation; banking sector; Debt bias; Allowance for corporate equity; Housing prices; Corporate income tax; Stocks; Europe; Global; ACE duplication; house-price volatility; ACE system; Personal income tax
Cover Staff Discussion Notes
Tax Biases to Debt Finance: Assessing the Problem, Finding Solutions
Ruud A. de Mooij
Staff Discussion Notes showcase the latest policy-related analysis and research being developed by individual IMF staff and are published to elicit comment and to further debate. These papers are generally brief and written in nontechnical language, and so are aimed at a broad audience interested in economic policy issues. This Web-only series replaced Staff Position Notes in January 2011.
Keywords:
SDN; CIT rate; debt issuance; income tax; cost of capital; debt-equity choice; intracompany debt; debt holder; debt-asset ratio; debt level; pre-existing debt; Debt bias; Corporate income tax; Allowance for corporate equity; Comprehensive business income tax; Stocks; Europe
Cover IMF Survey
IMF Survey, Volume 35, Issue 15
International Monetary Fund. External Relations Dept.
IMF and low-income countries; De Rato in Tokyo; U.K. poverty initiative; Palau, Lithuania, Ethiopia, Kuwait; Volatility in Latin America; U.S. home equity withdrawal; Botswana: avoiding the resource curse; India: tax reform; U.S corporate cash balances.
Keywords:
SV; IMF-World Bank Annual Meetings; home equity withdrawal; Rodrigo de Rato; Maastricht inflation reference rate; home equity; IMF quota; health sector reform; IMF-World Bank; Natural resources; Stocks; Tax wedge; Global; Asia and Pacific; Africa; Europe; Pacific Islands
Cover IMF Working Papers
U.S. Private Saving and the Tax Treatment of IRA/401(k)s: A Re-examination Using Household Survey Data
Mr. Alun H. Thomas
and
Mr. Christopher M Towe
The effect of the tax treatment of IRA/401(k)s on U.S. personal saving is examined using household survey data from the Survey of Consumer Finances. The results suggest that the tax treatment of IRA/401(k)s encouraged households to increase the share of assets held in the form of pension savings, at the expense of saving in the form of housing equity. Some evidence also was found to suggest that the tax treatment of pension savings similarly affected the flow of saving. In particular, the data appeared to reject the hypothesis that the tax treatment of IRA/401(k)s increased total personal saving.
Keywords:
WP; asset share; saving rate; assets--financial assets; threshold dummy; wealth household; Income; Marginal effective tax rate; Pensions; Aging; Stocks
Cover IMF Working Papers
Taxation and the Cost of Capital in Hungary and Poland: A Comparison with Selected European Countries
International Monetary Fund
This paper compares the effective rates of taxation faced by a representative investor located in a major capital-exporting country for investments in machinery and buildings in nine capital-importing European countries. Poland and Hungary are found to have relatively high effective tax rates on equity-financed investment. The analysis suggests that both countries would benefit from streamlining capital cost recovery allowances and possibly lowering statutory corporate tax rates—as permitted by the revenue constraint—rather than providing tax preferences for foreign investors.
Keywords:
WP; after-tax rate of return; cost of capital; depreciation rate; equity-financed investment; tax wedge; income tax; tax system; tax burden; nominal interest rate; Tax wedge; Corporate income tax; Corporate taxes; Depreciation; Stocks; Eastern Europe; Central and Eastern Europe