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The Cash Flow Corporate Income Tax

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  • Mervyn A. King

Abstract

The current debate on tax reform has raised again the question of how the corporate tax system should be altered. The cumulative effect of piece meal changes to the tax system has been to produce major distortions in the pattern of savings and investment and falling revenue in real terms. To overcome these problems, reform, both in the US and UK, has focussed on ways to tax the real economic income of companies. The main problems with this approach are the difficulties of (a) indexing the tax treatment of income from capital in a comprehensive manner and (b) defining economic depreciation. This paper discusses and alternative way to obtain the objective of fiscal neutrality without a significant erosion of the tax base. The implications of such a cash flow corporate income tax for financial and investment decisions are discussed both theoretically and in terms of potential and administrative and practical problems of implementation.

Suggested Citation

  • Mervyn A. King, 1986. "The Cash Flow Corporate Income Tax," NBER Working Papers 1993, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1993
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    References listed on IDEAS

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    1. Edwards, J, 1982. "The green paper on corporation tax: a review article," Fiscal Studies, Institute for Fiscal Studies, vol. 3(2), pages 102-113, July.
    2. M. S. Feldstein, 1970. "Corporate Taxation and Dividend Behaviour," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 37(1), pages 57-72.
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    Cited by:

    1. Boss, Alfred, 1990. "Reform of capital income taxation in the Federal Republic of Germany: Policy options," Open Access Publications from Kiel Institute for the World Economy 1852, Kiel Institute for the World Economy (IfW Kiel).
    2. Boss, Alfred, 1989. "Capital income taxation in the Federal Republic of Germany: What is wrong? What can be done?," Kiel Working Papers 402, Kiel Institute for the World Economy (IfW Kiel).
    3. Heady, Christopher J. & Mitra, Pradeep K., 1992. "Taxation in decentralizing socialist economies : the case of China," Policy Research Working Paper Series 820, The World Bank.

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