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Consumption-Based Tax Systems And Investment Neutrality: Does The Corporation Income Tax Depreciation Method Impact Investment Capital Value?

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  • Michael Heinhold
  • Silke Hüsing
  • Helmut Pasch

Abstract

In this paper we investigate the neutrality of tax allowances by considering the Croatian and the German profit taxes. Our mathematical analysis shows that in the Croatian system, neutrality cannot be attained by the allowance for corporate equity if the tax free rate of interest does not equal the individual discount rate. The sensitivity analysis shows that in the Croatian system, the profitability of early tax reductions by tax write-offs falls below the profitability in the German system by a maximum of only 2.5 percentage points. In the system that provides an allowance for corporate equity, the profitability of an early tax reduction is high enough to influence investment decisions.

Suggested Citation

  • Michael Heinhold & Silke Hüsing & Helmut Pasch, 2000. "Consumption-Based Tax Systems And Investment Neutrality: Does The Corporation Income Tax Depreciation Method Impact Investment Capital Value?," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 52(3), pages 261-281, July.
    • Handle: RePEc:sbr:abstra:v:52:y:2000:i:3:p:261-281
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    Cited by:

    1. Kramer, Frank, 2009. "Symmetric cash flow-taxation and cross-border investments," Bayreuth Working Papers on Finance, Accounting and Taxation (FAcT-Papers) 2009-03, University of Bayreuth, Chair of Finance and Banking.
    2. Rainer Niemann & Mariana Sailer, 2023. "Is analytical tax research alive and kicking? Insights from 2000 until 2022," Journal of Business Economics, Springer, vol. 93(6), pages 1149-1212, August.
    3. Lammersen, Lothar, 2002. "Investment Decisions and Tax Revenues Under an Allowance for Corporate Equity," ZEW Discussion Papers 02-47, ZEW - Leibniz Centre for European Economic Research.
    4. International Monetary Fund, 2009. "Sierra Leone: Selected Issues and Statistical Appendix," IMF Staff Country Reports 2009/012, International Monetary Fund.

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