Working Paper: NBER ID: w0457
Authors: Alan J. Auerbach
Abstract: There is probably no specific problem in tax analysis which has generated as much study and discussion among economists as the question of how to formulate "neutral" tax incentives for investment. Yet no consensus has been reached concerning the proper approach to take when adjusting taxes. Comparing the two fundamental notions of neutrality found in the literature, referred to here as "present value" rules and "internal rate of return" rules, we argue that there is both a single appropriate neutrality criterion (the latter) and a framework which can be used to evaluate the performance of a tax system with respect to this criterion.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax treatment (H20) | allocation of capital (G31) |
| neutral tax system (H29) | efficient allocation of capital (G31) |
| neutrality criterion (C52) | equal effective tax rates (H29) |
| tax policy (H20) | investment decisions (G11) |