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Effective Tax Rates on Capital in New Zealand - Changes 1972-1998

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  • Alowin Moes

Abstract

Effective tax rates (rather than statutory tax rates) on capital assets can give us an idea of the level of distortion imposed on investment by the tax system. This paper describes a study of effective tax rates on different types of capital assets in New Zealand using the King-Fullerton methodology. While the usual caveats of the application of King-Fullerton methodology apply, a clear story emerges from the data. The model demonstrates the severely negative impact of inflation, especially under the old tax regime and at the high rates of inflation seen in the late 1970s and 80s. By comparison, the current tax system is shown to be rather consistent across different types of capital assets and means of financing. The low inflation of the past few years has contributed to the improvement, but this study shows that the new tax regime performs better even under equalised circumstances (e.g. zero inflation) for the whole period under consideration.

Suggested Citation

  • Alowin Moes, 1999. "Effective Tax Rates on Capital in New Zealand - Changes 1972-1998," Treasury Working Paper Series 99/12, New Zealand Treasury.
    • Handle: RePEc:nzt:nztwps:99/12
    Note: This paper has benefited immensely from preparatory work by Peter Goss. The paper was originally prepared for the New Zealand Association of Economists Conference, Rotorua, 30 June to 2 July 1999.
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    File URL: https://treasury.govt.nz/sites/default/files/2018-01/twp99-12.pdf
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    References listed on IDEAS

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    1. Auerbach, Alan J & Hines, James R, Jr, 1988. "Investment Tax Incentives and Frequent Tax Reforms," American Economic Review, American Economic Association, vol. 78(2), pages 211-216, May.
    2. Kenneth J. McKenzie, 1994. "The Implications of Risk and Irreversibility for the Measurement of Marginal Effective Tax Rates on Capital," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 604-619, August.
    3. Iwamoto, Yasushi, 1992. "Effective tax rates and Tobin's q," Journal of Public Economics, Elsevier, vol. 48(2), pages 225-237, July.
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    5. Don Fullerton, 1983. "Which Effective Tax Rate?," NBER Working Papers 1123, National Bureau of Economic Research, Inc.
    6. Mervyn A. King, 1974. "Taxation and the Cost of Capital," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(1), pages 21-35.
    7. Kenneth J. McKenzie & Jack M. Mintz & Kimberly A. Scharf, 1997. "Measuring Effective Tax Rates in the Presence of Multiple Inputs: A Production Based Approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(3), pages 337-359, July.
    8. Hansson, Ingemar & Stuart, Charles, 1986. "The Fisher Hypothesis and International Capital Markets," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1330-1337, December.
    9. David F. Bradford & Charles Stuart, 1986. "Issues in the Measurement and Interpretation of Effective Tax Rates," NBER Working Papers 1975, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Jennie Cho & Jilnaught Wong & Norman Wong, 2006. "Book-Tax Differences and Inland Revenue Audit Adjustments in New Zealand," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(9-10), pages 1650-1667.
    2. Jennie Cho & Jilnaught Wong & Norman Wong, 2006. "Book‐Tax Differences and Inland Revenue Audit Adjustments in New Zealand," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(9‐10), pages 1650-1667, November.
    3. Jana Morávková, 2015. "Effective Corporate Tax Rate [Efektivní sazba korporátní daně]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2015(4), pages 39-58.

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