CAPITAL RECOVERY AND ECONOMIC EFFICIENCY: THE CASE OF IMPERFECT LOSS OFFSET (TAXATION, PUBLIC FINANCE, INVESTMENT).

摘要

A large body of literature exists concerning the effects of taxes on capital--on the rate of capital accumulation, efficiency of the capital stock, and overall economic efficiency. While the early literature was concerned with tax-related elasticities, later research was conducted in an optimal taxation mode. Of interest was the way in which capital taxes produced deadweight loss through an inefficient composition of capital. The key analytical tool was the marginal effective tax rate, defined as the proportionate difference between pre- and post-tax rates of return. Differences in effective tax rates suggest a less-than-optimal composition of capital.;This dissertation explores the effects of less-than-perfect loss offset on effective tax rates, capital composition, and new business formation. The analytical mode is "neoclassical"--firms are assumed to be profit-maximizing price takers in a world in which the income streams associated with investments are known with certainty. Firms face various depreciation systems under various loss-offset regimes involving carryforwards and carrybacks. Effective tax rates are calculated for various asset classes under different loss-offset provisions and compared to the perfect-offset case. The extent to which mature firms can use outside income streams to produce offsetting is also explored.;Mature firms are different from start-ups in that the former can achieve full offset through outside shelters. Effective tax rates, by industry, are calculated for start-up firms and compared to those for mature firms. Results indicate that lack of offset produces a systematic bias against new business formation in our economy. Investments by new businesses face substantially higher effective tax rates than do identical investments by mature firms. This bias is a tax-induced barrier to entry that is worse in some industries than in others.;Depreciation treatment and investment tax credits play prominent roles in effective tax rate calculations. Much of the effective tax rate literature, which concerns the way in which capital recovery provisions produce divergences in effective tax rates, is deficient because it assumes that all firms could make immediate use of all tax shields. In a world of front-loaded tax benefits, this assumption of "perfect loss offset" is unrealistic.