IDEAS home Printed from https://ideas.repec.org/a/jns/jbstat/v226y2006i4p346-360.html
   My bibliography  Save this article

Observable Depreciation Deductions and the Effective Marginal Tax Burden on Investment

Author

Listed:
  • Becker Johannes

    (Cologne Center for Public Economics, Albertus-Magnus-Platz, D-50923, Cologne, Germany)

  • Fuest Clemens

    (Cologne Center for Public Economics, Albertus-Magnus-Platz, D-50923, Cologne, Germany)

Abstract

Forward-looking measures like the well-known effective marginal tax rate developed by King and Fullerton (1984) rely strongly on standardized assumptions on the effective use of depreciation deductions. This paper derives a method of assessing these assumptions empirically and of quantifying the bias resulting from simplifying assumptions. Using a balanced panel of German firms we calculate the path of depreciation deductions that should be observed if the assumptions on depreciation allowances were correct. These hypothetical deductions are compared to the observable ones in the data. We find that observable deductions slightly exceed the hypothetical ones. Moreover, we find a considerable degree of heterogeneity in the actual use of depreciation deductions across firms. On the basis of these results we calculate an adjusted effective marginal tax rate. It turns out that even small estimation biases in determining the tax deductions have a large impact on the effective tax rates for marginal investment projects. We conclude that forward-looking measures can and should be assessed empirically and that future research should emphasize the heterogenous impact of tax-related disincentives on business investment.

Suggested Citation

  • Becker Johannes & Fuest Clemens, 2006. "Observable Depreciation Deductions and the Effective Marginal Tax Burden on Investment," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 226(4), pages 346-360, August.
    • Handle: RePEc:jns:jbstat:v:226:y:2006:i:4:p:346-360
    DOI: 10.1515/jbnst-2006-0402
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/jbnst-2006-0402
    Download Restriction: no
    File URL: https://libkey.io/10.1515/jbnst-2006-0402?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Johannes Becker & Clemens Fuest, 2006. "Ist Deutschland Hoch‐ oder Niedrigsteuerland? Der Versuch einer Synthese," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(1), pages 35-42, February.
    2. Devereux, Michael P & Griffith, Rachel, 2003. "Evaluating Tax Policy for Location Decisions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(2), pages 107-126, March.
    3. King, Mervyn A. & Fullerton, Don, 2010. "The Taxation of Income from Capital," National Bureau of Economic Research Books, University of Chicago Press, number 9780226436319, August.
    4. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    5. Aarbu, Karl Ove & MacKie-Mason, Jeffrey K, 2003. "Explaining Underutilization of Tax Depreciation Deductions: Empirical Evidence from Norway," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(3), pages 229-257, May.
    6. Johannes Becker & Clemens Fuest, 2005. "Does Germany collect revenue from taxing the normal return to capital?," Fiscal Studies, Institute for Fiscal Studies, vol. 26(4), pages 491-511, December.
    7. Roger Gordon & Laura Kalambokidis & Joel Slemrod, 2003. "A New Summary Measure of the Effective Tax Rate on Investment," NBER Working Papers 9535, National Bureau of Economic Research, Inc.
    8. Michael Devereux & Alexander Klemm, 2003. "Measuring taxes on income from capital: evidence from the UK," IFS Working Papers W03/03, Institute for Fiscal Studies.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Johannes Becker & Clemens Fuest & Christoph Spengel, 2006. "Konzernsteuerquote und Investitionsverhalten," Schmalenbach Journal of Business Research, Springer, vol. 58(6), pages 730-742, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Johannes Becker & Clemens Fuest, 2006. "Ist Deutschland Hoch‐ oder Niedrigsteuerland? Der Versuch einer Synthese," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(1), pages 35-42, February.
    2. Dorota Wawrzyniak, 2013. "Opodatkowanie przedsiębiorstw jako determinanta bezpośrednich inwestycji zagranicznych w krajach Unii Europejskiej," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 37-55.
    3. Fernando M. M. Ruiz, 2006. "Convergence de l'impôt sur les sociétés dans l'Union E uropéenne," Economie & Prévision, La Documentation Française, vol. 0(2), pages 79-96.
    4. Michael Devereux, 2003. "Measuring taxes on income from capital," IFS Working Papers W03/04, Institute for Fiscal Studies.
    5. Chang Nam & Doina Radulescu, 2007. "Effects of Corporate Tax Reforms on SMEs’ Investment Decisions under the Particular Consideration of Inflation," Small Business Economics, Springer, vol. 29(1), pages 101-118, June.
    6. Agnès Bénassy-Quéré & Lionel Fontagné & Amina Lahrèche-Révil, 2005. "How Does FDI React to Corporate Taxation?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(5), pages 583-603, September.
    7. Rachel Griffith & Alexander Klemm, 2004. "What has been the tax competition experience of the past 20 years?," IFS Working Papers W04/05, Institute for Fiscal Studies.
    8. Gebhardt Heinz & Siemers Lars-H. R., 2017. "Die relative Steuerbelastung mittelständischer Kapitalgesellschaften: Evidenz von handelsbilanziellen Mikrodaten," Zeitschrift für Wirtschaftspolitik, De Gruyter, vol. 66(1), pages 1-35, April.
    9. Peter Schwarz, 2007. "Does capital mobility reduce the corporate-labor tax ratio?," Public Choice, Springer, vol. 130(3), pages 363-380, March.
    10. Michael P Devereux, 2007. "The Impact of Taxation on the Location of Capital, Firms and Profit: a Survey of Empirical Evidence," Working Papers 0702, Oxford University Centre for Business Taxation.
    11. Félix Domínguez Barrero & Julio López Laborda & Fernando Rodrigo Sauco, 2005. "Do Corporate and Personal Income Taxes Affect Incorporation?," Hacienda Pública Española / Review of Public Economics, IEF, vol. 174(3), pages 55-86, September.
    12. Norman Gemmell & Richard Kneller & Ismael Sanz, 2014. "The growth effects of tax rates in the OECD," Canadian Journal of Economics, Canadian Economics Association, vol. 47(4), pages 1217-1255, November.
    13. Hrvoje Šimoviæ, 2009. "Effective Corporate Income Tax Burden in Croatia," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 12(2), pages 107-121, November.
    14. Nadja Dwenger & Viktor Steiner, 2008. "Effective Profit Taxation and the Elasticity of the Corporate Income Tax Base: Evidence from German Corporate Tax Return Data," Discussion Papers of DIW Berlin 829, DIW Berlin, German Institute for Economic Research.
    15. Andreas Haufler & Alexander Klemm & Guttorm Schjelderup, 2009. "Economic integration and the relationship between profit and wage taxes," Public Choice, Springer, vol. 138(3), pages 423-446, March.
    16. Budryte, Alge, 2005. "Corporate income taxation in Lithuania in the context of the EU," Research in International Business and Finance, Elsevier, vol. 19(2), pages 200-228, June.
    17. Simeon Djankov & Tim Ganser & Caralee McLiesh & Rita Ramalho & Andrei Shleifer, 2010. "The Effect of Corporate Taxes on Investment and Entrepreneurship," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 31-64, July.
    18. Guntram Wolff, 2007. "Foreign Direct Investment in the Enlarged EU: Do Taxes Matter and to What Extent?," Open Economies Review, Springer, vol. 18(3), pages 327-346, July.
    19. Michael P Devereux, 2007. "Taxes in the EU New Member States and the Location of Capital and Profit," Working Papers 0703, Oxford University Centre for Business Taxation.
    20. Norman Gemmell & Richard Kneller & Ismael Sanz, 2014. "The growth effects of tax rates in the OECD," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(4), pages 1217-1255, November.

    More about this item

    Keywords

    Effective tax rates; corporate taxation;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jns:jbstat:v:226:y:2006:i:4:p:346-360. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.