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Tax Neutrality and the Social Discount Rate: A Suggested Framework

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  • Alan J. Auerbach

Abstract

There is probably no specific problem in tax analysis which has generated as much study and discussion among economists as the question of how to formulate "neutral" tax incentives for investment. Yet no consensus has been reached concerning the proper approach to take when adjusting taxes. Comparing the two fundamental notions of neutrality found in the literature, referred to here as "present value" rules and "internal rate of return" rules, we argue that there is both a single appropriate neutrality criterion (the latter) and a framework which can be used to evaluate the performance of a tax system with respect to this criterion.

Suggested Citation

  • Alan J. Auerbach, 1980. "Tax Neutrality and the Social Discount Rate: A Suggested Framework," NBER Working Papers 0457, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0457
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    References listed on IDEAS

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    1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    2. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Boadway, Robin & Harris, Richard, 1977. "A characterization of piecemeal second best policy," Journal of Public Economics, Elsevier, vol. 8(2), pages 169-190, October.
    4. J. Black, 1959. "Investment Allowances, Initial Allowances and Cheap Loans as Means of Encouraging Investment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 27(1), pages 44-49.
    5. Boadway, Robin W, 1978. "Investment Incentives, Corporate Taxation, and Efficiency in the Allocation of Capital," Economic Journal, Royal Economic Society, vol. 88(351), pages 470-481, September.
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    Cited by:

    1. Saman Majd & Stewart C. Myers, 1985. "Valuing the Government's Tax Claim on Risky Corporate Assets," NBER Working Papers 1553, National Bureau of Economic Research, Inc.
    2. Mark E. Doms & Wendy F. Dunn & Stephen D. Oliner & Daniel E. Sichel, 2004. "How Fast Do Personal Computers Depreciate? Concepts and New Estimates," NBER Chapters, in: Tax Policy and the Economy, Volume 18, pages 37-80, National Bureau of Economic Research, Inc.
    3. Jack, William & Viard, Alan D., 1996. "Production efficiency and the design of temporary investment incentives," Journal of Public Economics, Elsevier, vol. 61(1), pages 87-106, July.
    4. David G. Raboy, 1983. "Capital Composition Changes: Effects of Changing Haig-Simons Income Tax Rates," Public Finance Review, , vol. 11(1), pages 67-78, January.

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