The Taxation of Income from Capital docx

[...]... earned on the project itself With distortionary taxes the two rates of return can differ The size of the tax wedge depends upon the system of corporate taxation, the interaction of these taxes with inflation, the tax treatment of depreciation and inventories, the personal tax code, the treatment of diffe.rent legal forms of income (capital gains versus dividends, for example), the existence of wealth... net of tax return he would receive from lending at the market interest rate? This minimum pretax rate of return is called the cost of capital It depends upon the asset and industry composition of the investment, the form of finance used for the project, and the saver who is providing the funds For a given combination of these factors, we may express the relation between the cost of capital and the. .. by the different tax systems, and for this we need a theoretical framework The second type of international comparison usually consists of descriptions of the tax code in different countries as it affects particular assets or types of income For example, there are studies of the differences in the tax treatment of dividends, of capital transfers, and of capital gains Some of these studies have been the. .. glossary of notation is provided at the beginning of the book The work of the project fell into three parts First, there was the development of the conceptual framework Second, there was the collection of data on a comparable basis for the computation of effective marginal tax rates Finally these rates were estimated using a common computer program The bulk of the time was taken up in producing estimates of. .. both the "fixed-p" and the "fixed-r" cases A hypothetical project is defined in terms of a particular combination of characteristics that affect the tax levied on the returns from the project The characteristics we examine include the asset in which the funds are invested, the industry of the project, the way the project is financed, and the ultimate recipient or owner of the returns Each hypothetical... given by ClkPk, the additional pretax profits that result from the marginal increment to the capital stock If both combinations are to earn the same r, then the taxed combination must have a higher share of the additional pretax profits than of the capital stock The choice between the fixed-p and the fixed-r distributions of marginal tax rates depends upon whether we are more interested in the tax schedule... bring together the different aspects of the tax code, it also allows us to compute the quantitative significance of the tax system as a whole The size of the marginal tax rate levied on investment depends upon the way the project is financed and the identity of the supplier of finance We have attempted to compute distributions of marginal tax rates using as weights the proportions of net capital stock... rate and the return to the saver depends on the tax treatment of personal income In none of the four countries studied here is the personal tax base defined as real income from capital Rather, tax is charged on receipt of nominal interest income Hence the posttax real rate of return to the saver is given by (2.6) s = (1 - m)(r + 11) - 11 - wp ' 11 The Measurement of Effective Tax Rates where m is the marginal... failure of most of the developed economies to sustain high growth rates has led to an increased awareness of the lessons we may learn from each other Is it true, for example, that countries with the highest rates of productivity growth have the lowest tax rates on capital income? The aim of the research described in this book is to compare the effective tax rates levied on capital income in the nonfinancial... which the funds are invested, the nature of the financial claims on the profits (equity ve.rsus debt), and the ultimate recipient of the capital income To investigate the distribution of effective tax rates within each country, we consider a series of hypothetical projects, where each project corresponds to a particular combination of asset, industry, financial instrument, and owner The first set of calculations . particular assets or types of income. For example, there are studies of the differ- ences in the tax treatment of dividends, of capital transfers, and of capital gains. Some of these studies. King, and P. Penneck of the Inland Revenue, from R. I. Armitage of the Central Statistical Office, and from J. S. Flemming and J. Ryding of the Bank of England. The chapter on Sweden was