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The taxation of discrete investment choices

Devereux, M.P.; Griffith, R.; (1998) The taxation of discrete investment choices. (IFS Working Papers W98/16). Institute for Fiscal Studies: London, UK. Green open access

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Abstract

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.

Type: Working / discussion paper
Title: The taxation of discrete investment choices
Open access status: An open access version is available from UCL Discovery
Publisher version: http://www.ifs.org.uk/publications/2728
Language: English
Keywords: H25, H32
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/14909
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