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Effective Average Tax Rates for Permanent Investment
Author:
Mr. Alexander D Klemm
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Series:
IMF Working Papers
Volume/Issue:
Volume 2008: Issue 056
Language:
English
Publication Date:
01 Mar 2008
DOI:
https://doi.org/10.5089/9781451869187.001
ISBN:
9781451869187
ISSN:
1018-5941
Pages:
16
Keywords:
WP; present discounted value
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper extends the effective average tax rate (EATR) developed in Devereux and Griffith (2003) by relaxing the assumption of a one-period perturbation in the capital stock. Instead it allows a permanent investment. While this may appear a small change, it has important implications. First, it allows the EATR to be calculated in the presence of tax holidays, which are an important part of tax systems, especially in developing countries. Second, it reveals an interesting feature of the original EATR: despite the assumption of a one-period investment, the original measure is informative about long-term investments, thanks to the assumption of pooled depreciation. Without this assumption-which is justifiable in a few countries only- the EATR based on one-period perturbation in the capital stock would be less useful for analyzing medium and long-term investments.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2008: Issue 056