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Generalised R-based and S-based taxes under uncertainty

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  • Stephen Bond

    (Institute for Fiscal Studies and Nuffield College, Oxford)

  • Michael Devereux

    (Institute for Fiscal Studies and University of Oxford)

Abstract

This paper considers the relationship between two general neutral business tax structures, which we label the ?irm tax' and the ?hareholder tax? The well-known R-based and S-based cash flow taxes, analysed by Meade (1978), are special cases of these two taxes. We demonstrate the neutrality of both taxes in the presence of uncertainty, and characterise the tax rules required in the event of default and wind-up. Our analysis provides the first proof of the neutrality of the S-based cash flow tax and the Allowance for Corporate Equity (ACE) corporation tax under uncertainty. We also discuss implementation and tax avoidance issues.

Suggested Citation

  • Stephen Bond & Michael Devereux, 1999. "Generalised R-based and S-based taxes under uncertainty," IFS Working Papers W99/09, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:99/09
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    1. Boadway, Robin & Bruce, Neil, 1984. "A general proposition on the design of a neutral business tax," Journal of Public Economics, Elsevier, vol. 24(2), pages 231-239, July.
    2. Bond, Stephen R. & Devereux, Michael P., 2003. "Generalised R-based and S-based taxes under uncertainty," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1291-1311, May.
    3. Bonds, Stephen R. & Devereux, Michael P., 1995. "On the design of a neutral business tax under uncertainty," Journal of Public Economics, Elsevier, vol. 58(1), pages 57-71, September.
    4. King, Mervyn A., 1975. "Taxation, corporate financial policy, and the cost of capital : A comment," Journal of Public Economics, Elsevier, vol. 4(3), pages 271-279, August.
    5. Stiglitz, Joseph E., 1973. "Taxation, corporate financial policy, and the cost of capital," Journal of Public Economics, Elsevier, vol. 2(1), pages 1-34, February.
    6. Fane, G., 1987. "Neutral taxation under uncertainty," Journal of Public Economics, Elsevier, vol. 33(1), pages 95-105, June.
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    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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