NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A New Summary Measure of the Effective Tax Rate on Investment

Roger Gordon, Laura Kalambokidis, Joel Slemrod

NBER Working Paper No. 9535
Issued in March 2003
NBER Program(s):   PE

The empirical literature that seeks to measure the effective tax rate on new investment offers a striking paradox. On the one hand, summary measures of the effective tax rate on new investment are normally quite high. On the other hand, the amount of revenue actually collected from taxing capital income is apparently very low. In this paper we derive explicitly how revenue figures (under the existing system and under a hypothetical R-base tax) can be used to construct an estimate of the true effective tax rate on capital income, and how this measure and existing measures are affected by several factors, including resale of assets (churning), risk, pure profits, debt finance and arbitrage, and choice of organizational form.We conclude that our new methodology provides a very useful, but not fail-safe, approach for measuring the effective tax rate on new investment. It is much more robust than the standard measures, such as King-Fullerton marginal effective tax rates complications in the tax law. In trying to reconcile the high conventional measures of the effective tax rate with the low revenue collected, we conclude that the effective tax rate does seem to be much lower than existing measures suggest.

download in pdf format
   (288 K)

email paper

This paper is available as PDF (288 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w9535

Published: Sorensen, Peter Birch (ed.) Measuring the tax burden on capital and labor CESifo Seminar Series. Cambridge and London: MIT Press, 2004.

Users who downloaded this paper also downloaded these:
Fullerton w1123 Which Effective Tax Rate?
Gordon, Kalambokidis, and Slemrod w9477 Do We Now Collect Any Revenue From Taxing Capital Income?
Markle and Shackelford w16839 Cross-Country Comparisons of Corporate Income Taxes
Feldstein, Poterba, and Dicks-Mireaux w0740 The Effective Tax Rate and the Pretax Rate of Return
Mendoza, Razin, and Tesar w4864 Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us