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Business and Economics > Corporate Taxation

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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 Staff Country Reports
Peru: Selected Issues
International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper evaluates features of the Peruvian tax system that may have contributed to weak revenue growth, as well as reforms to strengthen the tax system. Using data on domestic tax collection in conjunction with cross-country data on tax rates, collection and tax expenditures, we attempt to shed light on the factors that distinguish tax revenue mobilization in Peru from other countries in the region. The paper also discusses recent reforms in tax policy and tax administration, and present advice for continued progress in these areas. Elimination of multiple tax regimes for small businesses can provide a boost to revenues from corporate taxes. An IMF technical evaluation of the small business tax regimes finds that a rationalization of the two existing regimes into one with the same marginal rate as the general regime will result in revenue gains of around 0.14 percent of GDP. There is ample room to increase the contribution of excises and property taxes to overall tax revenues. Relative to the regional average, Peru will continue to lag peer economies even if the current reform performs at full potential. This suggests room for further policy reforms to bring excise taxes in line with the levels of comparable economies.
Keywords:
ISCR; CR; Peru; rate; policy rate gap; dollarization; inflation targeting framework; policy instrument; Policy rate decision; transmission mechanism; monetary policy rate; macro-prudential policies; Central bank policy rate; Reserve requirements; Real exchange rates; Value-added tax; Global; Caribbean; Asia and Pacific; output gap; Policy rate; price boom
Cover IMF Working Papers
A Destination-Based Allowance for Corporate Equity
Mr. Shafik Hebous
and
Mr. Alexander D Klemm
Following renewed academic and policy interest in the destination-based principle for taxing profits—particularly through a destination-based cash flow tax (DBCFT)—this paper studies other forms of efficient destination-based taxes. Specifically, it analyzes the Destination-Based Allowance for Corporate Equity (DBACE) and Allowance for Corporate Capital (DBACC). It describes adjustments that are required to turn an origin into a destination-based versions of these taxes. These include adjustments to capital and equity, which are additional to the border adjustments needed under a DBCFT. The paper finds that the DBACC and DBACE reduce profit shifting and tax competition, but cannot fully eliminate them, with the DBACE more sensitve than the DBACC. Overall, given the potential major political cost of switching from an origin to a destination-based tax system, we conclude that advantages of the DBCFT are likely to outweigh the transitional advantages of the DBACE/DBACC.
Keywords:
WP; interest rate; capital stock; Destination-Based Taxation; ACE; ACC; investment goods; notional interest rate; tax competition; interest receipt; competition policy tool; rate of return; border tax; depreciation rate; upfront tax cost; tax saving; Allowance for corporate equity; Value-added tax; Stocks; Discount rates; Corporate income tax; Global; Destination-based allowance; copyright Page; B. profit shifting; based allowance; E. exchange rate
Cover Technical Notes and Manuals
Fiscal Analysis of Resource Industries: (FARI Methodology)
Ms. Oana Luca
and
Diego Mesa Puyo
This manual introduces key concepts and methodology used by the Fiscal Affairs Department (FAD) in its fiscal analysis of resource industries (FARI) framework. Proper evaluation of fiscal regimes for extractive industries (EI) requires economic and financial analysis at the project level, and FARI is an analytical tool that allows such fiscal regime design and evaluation. The FARI framework has been primarily used in FAD’s advisory work on fiscal regime design: it supports calibration of fiscal parameters, sensitivity analysis, and international comparisons. In parallel to that, FARI has also evolved into a revenue forecasting tool, allowing IMF economists and government officials to estimate the composition and timing of expected revenue streams from the EI sector, analyze revenue management issues (including quantification of fiscal rules), and better integrate the EI sector in the country macroeconomic frameworks. Looking forward, the model presents a useful tool for revenue administration practitioners, allowing them to compare actual, realized revenues with model results in tax gap analysis.
Keywords:
TNM; income tax; discount rate; cash flows; capital expenditure; withholding tax; Mining taxation; petroleum taxation; fiscal regime design; profit petroleum; Project net cash flows; payback period; internal rate of return; cost of capital; Currencies; Oil; Corporate income tax; Discount rates; Fiscal Analysis of Resource Industries (FARI); Africa
Cover IMF Working Papers
Economic Policies and FDI Inflows to Emerging Market Economies
Ms. Elif C Arbatli Saxegaard
This paper investigates the determinants of FDI inflows to emerging market economies, concentrating on the effects of economic policies. The empirical analysis also addresses the role of external push factors and of political stability using a domestic conflict events database. The results suggest that lowering corporate tax rates and trade tariffs, adopting fixed or managed exchange rate policies and eliminating FDI related capital controls have played an important role. Domestic conflict events and political instability are found to have significant negative effects on FDI, which highlights the role of incluside policies to promote growth and avoid sudden stops of FDI inflows.
Keywords:
WP; FDI inflow; FDI; FDI flow; Emerging Market Economies; Economic Policies; growth rate; country specific pull factors; government stability; major government crisis; government policy; crisis lead; time series; FDI inflows to EME; A. FDI inflow; moving average; Foreign direct investment; Corporate income tax; Emerging and frontier financial markets; Capital account; Real interest rates; Global; Central and Eastern Europe
Cover IMF Staff Country Reports
Sri Lanka: Selected Issues and Statistical Appendix
International Monetary Fund
This paper explores how monetary policy affects other macroeconomic variables, mainly output and inflation. First, it provides an overview of the framework for implementing monetary policy and then discusses the transmission mechanism itself. In this study, the following statistical data are listed in detail: GDP and expenditure components, savings, investment, current account, consumption and prices of petroleum and electricity, price indicators, employment by economic sectors, monetary survey, selected interest rates, balance of payments, exports and imports by commodity, direction of trade, services and income.
Keywords:
ISCR; CR; repo rate; exchange rate; transmission mechanism; accelerated depreciation; private sector; reverse repo; central bank; Tax incentives; Repo rates; Tax holidays; Corporate income tax; Credit; Middle East
Cover IMF Working Papers
Does Inflation Targeting Matter?
Niamh Sheridan
and
Laurence M. Ball
This paper asks whether inflation targeting improves economic performance, as measured by the behavior of inflation, output, and interest rates. We compare 7 OECD countries that adopted inflation targeting in the early 1990s to 13 that did not. After the early 1990s, performance improved along many dimensions for both targeting and nontargeting countries. In some cases, the targeters improved by more. However, these differences are explained by the fact that targeters performed worse than nontargeters before the early 1990s, and there is regression towards the mean. Once one controls for this, there is no evidence that inflation targeting improves performance.
Keywords:
WP; inflation targeting country; inflation-targeting dummy; unit inflation shock; inflation expectation; inflation targeters; OECD inflation forecast; Inflation Targeting Regime; inflation-targeting period; trend inflation; inflation persistence; Inflation; Inflation targeting; Corporate income tax; Production growth; Short term interest rates
Cover IMF Working Papers
Firm Investment, Corporate Finance, and Taxation
Mr. Geremia Palomba
This paper examines the intertemporal effect of corporate income taxation on the investment behavior of a firm that faces imperfect capital markets. It shows that when capital markets are imperfect, the optimizing firm goes through different phases of growth. In this dynamic setting, the effect of a corporate tax on profits varies over time. An increase in the corporate profit tax rate initially reduces investment, but the effect is reversed over time as the firm adjusts its financing policy to the new tax rate.
Keywords:
WP; mover accent; tax rate; Firm Investment; Imperfect Capital Markets; Corporate Income Taxation; financing decision; maximization problem; cash flow; decision process; financing policy; co-state variable; investment strategy; A. firm investment; Corporate income tax; Stocks; Investment policy; Capital accumulation; Market interest rates
Cover IMF Staff Country Reports
Canada: Selected Issues
International Monetary Fund
This Selected Issues paper reviews empirical evidence on the main determinants of the real bilateral exchange rate between the Canadian and the U.S. dollars, with particular emphasis on the role played by cyclical and longer-term economic factors. The paper aims to identify the nature of the shocks that have contributed to the recent downward trend in the Canadian dollar. The analysis shows that fluctuations in the real bilateral exchange rate can be explained reasonably well by its long-term fundamentals. The paper also analyzes inflation and the natural rate of unemployment in Canada.
Keywords:
ISCR; CR; Canada's official development assistance; Canada; Canada's ODA priority; tax rate; Canada Phillips-curve regression; objective of Canada's ODA; personal income tax system; Corporate income tax; Real exchange rates; Personal income; Personal income tax; North America; Central and Eastern Europe; Africa; Asia and Pacific