Working Paper: CEPR ID: DP684
Authors: Antonio Estache; Sweder van Wijnbergen
Abstract: King-Fullerton methodology cannot assess the minimum-asset tax (MAT) because it cannot handle uncertainty. We present an alternative based on option pricing, and show how carry-over rules, depreciation conventions and uncertainty affect the MAT burden. Using Brazilian data, we show that: (a) because of the high intersectoral variance of capital intensity, the MAT does not reduce sectoral distortions; and (b) while high variance raises the MAT burden, high risk firms are not hit harder by the MAT: high-risk firms also have a high rate of return, which reduces the impact of the MAT.
Keywords: minimum asset taxes; uncertainty; tax incentives; option pricing; brazil
JEL Codes: H21; H25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| minimum asset tax (MAT) (H26) | sectoral distortions (L52) |
| high intersectoral variance of capital intensity (D29) | MAT burden (E16) |
| high-risk firms (G32) | MAT impact (E16) |
| minimum asset tax (MAT) (H26) | marginal effective tax rate (MERT) (H21) |
| macroeconomic uncertainty (D89) | minimum asset tax (MAT) (H26) |