Costs of monitoring and corporate taxation

Kanniainen, Vesa; Södersten, Jan

doi:10.1016/0047-2727(94)90056-6

Cited by 23 publications

(22 citation statements)

References 24 publications

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“…Notice that under the accounting standards followed by …rms investing in both the United States and the United Kingdom, provision for deferred taxes are measured on the di¤erence between accounting and tax depreciation, whereas the above de…nition of the period t provision for deferred taxes assumes that economic depreciation equals accounting depreciation. We retain this assumption on that basis that it is consistent with the standard conventions in the established literature on tax policy and …nancial constraints -see previously cited papers by Boadway and Bruce (1979), Södersten (1994 and1995), King (1974), Sørensen (1995) -and also taking into account the fact that over the past 20 years accounting standards followed by United States and United Kingdom companies have increased their ‡exibility in order to align accounting depreciation to economic depreciation. Indeed, the IAS 16 (International GAAP 2010) does not prescribe any speci…c method and/or rate of depreciation for accounting purposes, as it requires the depreciation charge to re ‡ect the pattern of consumption of the bene…ts the assets brings over its useful life, which is essentially consistent with economic depreciation.…”

Section: Constrained Emtrmentioning

confidence: 79%

Up or Down? Capital Income Taxation in the United States and the United Kingdom

2012

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Empirical evidence suggests that the E¤ective Marginal Tax Rate (EMTR) on income from capital has increased considerably in both the United States and the United Kingdom over the period . This evidence contradicts the corporate tax literature which predicts that the EMTR should instead fall over time as a result of increasing international capital mobility and higher tax competition between governments. This paper argues that this inconsistency is entirely due to the fact that EMTRs on income from capital are currently computed from versions of the neoclassical investment model which do not take into account …nancial constraints on dividend policy faced by …rms investing in both the United States and the United Kingdom. The paper incorporates …nancial constraints on dividend policy into the analytical framework for the computation of the EMTR and employs the new model to re-calculate time series of the EMTRs in both countries. The new empirical results show that, in contrast to the existing evidence, the EMTR on investment …nanced by either retained earnings or new equity has indeed declined over time in both countries, while the EMTR on debt-…nanced investment has remained relatively stable.

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Section: Constrained Emtrmentioning

confidence: 79%

Up or Down? Capital Income Taxation in the United States and the United Kingdom

2012

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“…An early exception is found in Kanniainen and Södersten (1994) who analyze the impact of bank monitoring on the response of firms to corporate taxes. They take the view that monitoring perfectly solves any conflict between shareholders and the management; hence, agency problems that result in diverging investment incentives are effectively absent in their analysis.…”

Section: Literature Reviewmentioning

confidence: 99%

“…α * * = α * (m * * , z) and m * * = m * (α * * ). 33 With local stability of the Nash equilibrium, the sign of the change in α * * in response to a hike in z follows from ∂α * (m, z)/∂z and the sign of the change in m * * from dm * (α)/dα, implying that the change ∂α * (m, z)/∂m does not influence the qualitative changes in α * * and m * * . 34 Intuitively, a rise in z has a direct effect on α which changes the monitoring intensity as implied by the slope of the bank's best response.…”

Section: Investment Policy Incentive Contracts and Monitoringmentioning

confidence: 99%

Corporate deductibility provisions and managerial incentives

Koethenbuerger¹,

Stimmelmayr²

2014

Journal of Public Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Using an agency model of firm behavior, the paper analyzes whether the cost of investment should be tax exempt. The findings suggest that, when managers engage in wasteful capital expenditures, welfare may decline if the cost of investment is tax deductible, as commonly advocated. The extent to which the return on investment should be taxed depends on how the internal provision of incentive pay and external monitoring by banks interact in constraining the manager and whether retained earnings or new share issues finance investments at the margin. The results are informative for the design of investment subsidies which might be integrated in corporate tax systems such as an Allowance for Corporate Equity or a cash-flow tax. Terms of use: Documents in EconStor mayJEL-Code: H250, D210.

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“…Why firms do not fully use their tax allowance possibilities and how this would affect the corporate tax paid on a marginal investment is discussed in e.g. Bergström and Södersten (1984) and Kanniainen and Södersten (1994 Our results show close similarities with Södersten's calculations for occasional years from 1960 and on, as reported in Henrekson (1996) and Henrekson and Johansson (2009). But differences can be seen if one compares with Södersten and Lindhe's (1983) results, which is explained by the fact that their results include three different ownership categories (besides households, also insurance companies and tax-exempted institutions).…”

Section: General Frameworkmentioning

confidence: 99%

“…65 When funds are released, the IF system can be characterized as a general profit subsidy which can be interpreted as a general deduction of the statutory tax rate. 66 According to Agell et al (1995, p. 116), a reasonable assumption about the IF system is that it could reduce the corporate tax rate with about 15 percentage points, as described in section 3.2. This may reduce the METR with about ten percentage points, see Figure B2.…”

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confidence: 99%

A 150-Year Perspective on Swedish Capital Income Taxation

2014

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: This paper describes the evolution of capital income taxation, including corporate, dividend, interest, capital gains and wealth taxation, in Sweden between 1862 and 2010. To illustrate the evolution, we present annual time-series data on the marginal effective tax rates on capital income (METR) for a marginal investment financed with new share issues, retained earnings or debt. Tax tables covering the period are presented. These data are unique in their consistency, thoroughness and time span covered. The METR is low, is stable and does not exceed five percent until World War I, when it starts to drift somewhat upward and vary depending on the source of finance. The outbreak of World War II starts a period when the magnitude and variation of the METR sharply increases. The METR peaks during the 1970s and 1980s and often exceeds 100 percent. The 1990-1991 tax reform and lower inflation reduce the magnitude and variation of the METR. The METR varies between 15 and 40 percent at the end of the examined period. Terms of use: Documents inJEL-codes: H21, H31, N44

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Costs of monitoring and corporate taxation

Cited by 23 publications

References 24 publications

Up or Down? Capital Income Taxation in the United States and the United Kingdom

Up or Down? Capital Income Taxation in the United States and the United Kingdom

Corporate deductibility provisions and managerial incentives

A 150-Year Perspective on Swedish Capital Income Taxation

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