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Effective Tax Rates and the User Cost of Capital when Interest Rates are Low

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  • Creedy, John
  • Gemmell, Norman

Abstract

Interest rates are a key component of both user cost and effective tax rate measures of company taxation, and each is regularly used in empirical tests of tax impacts on investment. However, it is shown that when interest rates are low the two measures are not monotonically related. Using a simulated sample of observations, this feature is found to generate perverse estimates of the effects of taxation on the investment plans of firms.

Suggested Citation

  • Creedy, John & Gemmell, Norman, 2017. "Effective Tax Rates and the User Cost of Capital when Interest Rates are Low," Working Paper Series 20292, Victoria University of Wellington, Chair in Public Finance.
    • Handle: RePEc:vuw:vuwcpf:20292
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    File URL: https://ir.wgtn.ac.nz/handle/123456789/20292
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    References listed on IDEAS

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    Cited by:

    1. Mursal Harahap & Bonar M. Sinaga & Adler H. Manurung & Tubagus Nur Ahmad Maulana, 2018. "Impact of Policies and Macroeconomic Variables on Tax Revenue and Effective Tax Rate of Infrastructure, Utility, and Transportation Sector Companies Listed in Indonesia Stock Exchange," International Journal of Economics and Financial Issues, Econjournals, vol. 8(3), pages 95-104.

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    More about this item

    Keywords

    Interest rates; Company taxation; Business taxes; Investment;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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