Working Paper: NBER ID: w2631
Authors: Jeffrey K. Mackie-Mason
Abstract: An intertemporal capital asset valuation approach is applied to analyzing the effects of nonlinear taxes on asset values and optimal investment decisions. The method is quite general, and is illustrated both analytically and numerically, The paper studies the effects of nonlinearities in the corporate income tax, including the percentage depletion allowance, on mine values and investment decisions. Although the tax policies are found to have the expected effects on asset values, the effects on investment decisions are sometimes perverse. An increase in the income tax rate may encourage investment; an increase in the depletion allowance subsidy may discourage investment.
Keywords: nonlinear taxation; mining; investment decisions; corporate income tax
JEL Codes: H25; H32; Q32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in corporate income tax rate (H29) | Decrease in value of a mine (L72) |
| Increase in corporate income tax rate (H29) | Increase in investment (E22) |
| Percentage depletion allowance (PDA) (H20) | Increase in quasi-rents (F29) |
| Percentage depletion allowance (PDA) (H20) | Decrease in investment under certain conditions (E22) |
| Higher output prices (D49) | Increase in tax liability (H22) |
| Higher tax rates (H29) | Reduce speculative value of delaying investment (G31) |
| Increase in corporate tax rate (H29) | Distort investment decisions (G11) |