By Dale W. Jorgenson, Kun-Young Yun
This e-book offers a complete therapy of the cost-of-capital strategy for studying the commercial influence of tax coverage. This technique has supplied an highbrow impetus for reforms of capital source of revenue taxation within the usa and around the globe. the price of capital and the marginal potent tax expense are mixed with estimates of substitution chances via companies and families in examining tax and spending courses. This makes it attainable to judge tax reforms and adjustments in executive spending. experiences of the industrial impression of tax rules have taken types. First, the price of capital has been included into funding features in macroeconomic types, that are used to version the short-run responses to tax coverage adjustments. moment, the cost-of-capital strategy has been built-in into utilized general-equilibrium versions utilized in comparing the long-run fiscal results of tax reforms.The cost-of-capital technique indicates avenues for tax reform. One might continue the source of revenue tax base of the prevailing U.S. tax approach, yet might equalize tax burdens on all kinds of resources in addition to common and marginal tax premiums on exertions source of revenue. the opposite might alternative intake for source of revenue as a tax base, whereas equating regular and marginal tax charges on exertions source of revenue.
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Extra resources for Investment, Vol. 3: Lifting the Burden: Tax Reform, the Cost of Capital, and U.S. Economic Growth
These effects also depend on substitutability among assets. As an example, consider the allocation of capital between short-lived and long-lived depreciable assets in the corporate sector. Even if the interasset difference in tax treatment is large, the distortion of capital allocation would be small if services of the two types of assets are not substitutable. Similarly, the distortion in resource allocation over time would be small if intertemporal substitutability in consumption is small. In chapter 7 we introduce the concept of the excess burden of taxation in order to assess efficiency losses due to taxation.
90 trillion, the largest gain from any tax reform we have considered. S. S. national wealth! Tax wedges do not complete the analysis of distortionary effects of capital income taxes. These effects also depend on substitutability among assets. As an example, consider the allocation of capital between short-lived and long-lived depreciable assets in the corporate sector. Even if the interasset difference in tax treatment is large, the distortion of capital allocation would be small if services of the two types of assets are not substitutable.
Finally, we assume that the firm has a maximum debt capacity that is proportional to the value of the firm’s capital stock. As before, the objective of the firm is to maximize the share value. We can think of a firm with borrowing and lending as consisting of departments for managing capital, production, and the liabilities of the firm. The first two departments are present in the simplest model of a firm with capital as a factor of production. The third is a finance department that issues and redeems debt and equity in order to satisfy the cash flow requirements of the firm.