Evaluating a Corporate Asset Tax
Abstract
This paper examines a tax on corporate assets as an alternative and/or complement to a tax on corporate income. All capital taxes have some degree of distortionary effects by reducing levels of investment, but an efficiently designed tax system may result in higher revenues for any level of distortion. A tax on corporate income results in higher levels of leverage, more cyclical tax revenues, and higher levels of investment in no-operating financial assets compared to a tax on corporate assets. On a macroeconomic level, a corporate asset tax has a greater reduction in investment and produces lower levels of revenue, especially when the Marginal Product of Capital (MPK) curve is relatively inelastic. On the microeconomic level, an asset tax has a greater impact on highly profitable firms while an income tax has a greater impact on scalable firms.
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