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Inflation and the Taxation of Capital Income in the Corporate Sector

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Martin Feldstein
Lawrence H. Summers

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Abstract

This detailed examination of the effect of inflation on the taxation of capital used by nonfinancial corporations considers not only the tax paid by the corporations them- selves but also the tax paid by the individuals and institutions that provide capital to the corporate sector. Although corporations deduct nominal interest payments that exceed real interest, the additional taxes that lenders pay slightly exceed the tax saving by corporate borrowers. Our calculations indicate that inflation raised the 1977 tax burden on corporate sector capital income by more than $32 billion, a 50 percent increase in the total tax burden.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0312.

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Date of creation: Apr 1980
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Publication status: published relationship to a non-chapter. This should not happen. Please contact NBER.
Handle: RePEc:nbr:nberwo:0312

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Aaron, Henry J, 1976. "Inflation and the Income Tax," American Economic Review, American Economic Association, vol. 66(2), pages 193-99, May. [Downloadable!] (restricted)
  2. Lawrence H. Summers, 1981. "Tax Policy in a Life Cycle Model," NBER Working Papers 0302, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Martin Feldstein & Lawrence H. Summers, 1979. "Inflation, Tax Rules, and the Long Term Interest Rates," NBER Working Papers 0232, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Bradford, David F., 1981. "The incidence and allocation effects of a tax on corporate distributions," Journal of Public Economics, Elsevier, vol. 15(1), pages 1-22, February. [Downloadable!] (restricted)
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  5. Feldstein, Martin S & Green, Jerry R & Sheshinski, Eytan, 1978. "Inflation and Taxes in a Growing Economy with Debt and Equity Finance," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages S53-70, April. [Downloadable!] (restricted)
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