Working Paper: NBER ID: w1600
Authors: Don Fullerton; Andrew B. Lyon
Abstract: When tax rates vary by asset, a "hidden" industrial policy may aid industries that invest in a certain mix of assets. In this paper, we examine whether differential use of depreciable assets gives rise to differential tax treatment of high technology industries relative to other industries. First, we calculate the total effective tax rate on a marginal investment in each of 34 assets. Next, using these asset-specific tax rates and weighting by the use of these assets in each of 73 different industries, we calculate total effective tax rates at the industry level. We find considerable variation within the high-tech sector and within the more traditional sector, but for the case of a taxable firm with a given debt/equity ratio, we do not find any systematic differences between overall rates in the two sectors.
Keywords: taxation; high-tech industries; investment incentives; effective tax rates
JEL Codes: H25; H32; L52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| overall effective tax rates do not significantly differ between high-tech and smokestack industries (L63) | tax burden on investments (H24) |
| substantial variation in tax rates that individual assets face within these sectors (H29) | overall effective tax rates do not significantly differ between high-tech and smokestack industries (L63) |
| high-tech industries exhibit considerable variation in tax rates (H29) | taxed similarly to traditional industries (H29) |
| differences in tax burdens between these sectors are not attributable to the tax treatment of depreciable assets (H29) | overall effective tax rates do not significantly differ between high-tech and smokestack industries (L63) |