The Dynamic Effects of Tax Law Asymmetries
NBER Working Paper No. 1152 (Also Reprint No. r0741)
Under current U.S. tax law, a distinction is made between gains and losses by businesses. Losses that must be "carried forward" are subject to two penalties: a loss of interest, and expiration after fifteen years. Previous examinations have focused on the higher expected tax payments such a tax system without "full loss offset" imposes on risky projects.This paper presents a dynamic analysis of the impact of taxation on investment when gains and losses are treated asymmetrically. The results provide a basis for analyzing recent tax changes, particularly the controversial"safe-harbor leasing" provisions of the 1981 tax legislation.
Published: Auerbach, Alan J. "The Dynamic Effects of Tax Law Asymmetries." Review of Economic Studies, Vol. 53, (1986), pp. 205-225.