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Some Calculations on Inflation and Corporate Taxation in Australia

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  • Heidi Willmann

    (Reserve Bank of Australia)

Abstract

This paper presents calculations of the effects of inflation on corporate tax liabilities in Australia. Inflation distorts the measurement of taxable corporate income in three main ways: it reduces the real value of depreciation allowances, creates artificial holding gains on inventories, and causes overstatement of the cost of debt financing under a nominal-interest accounting system. The first two of these effects work in the direction of overstating taxable income, while the third works in the opposite direction. The calculations suggest that in aggregate, inflation has increased effective tax rates on corporate income, with the largest effects occurring with a lag of several years after periods of high inflation.

Suggested Citation

  • Heidi Willmann, 1990. "Some Calculations on Inflation and Corporate Taxation in Australia," RBA Research Discussion Papers rdp9012, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp9012
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    File URL: https://www.rba.gov.au/publications/rdp/1990/9012.html
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    Cited by:

    1. John Clark & Brant Pridmore & Nicholas Stoney, 2007. "Trends in aggregate measures of Australia’s corporate tax level," Economic Roundup, The Treasury, Australian Government, issue 3, pages 1-28, September.
    2. Nigel Dews & John Hawkins & Tracey Horton, 1992. "Measuring the Cost of Capital in Australia," RBA Research Discussion Papers rdp9205, Reserve Bank of Australia.

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