Dual income taxation: the choice of the imputed rate of return

Finnish Economic Papers, 2001, vol. 14, issue 1, 5-13

Abstract: In this article we study a crucial aspect of a Dual Tax System: the choice of the imputed rate of return. Under interest rate uncertainty, its optimal value will be shown to depend on the nature of investment. Following Fane (1987), if investment is reversible, the imputation rate ensuring neutrality is proportional to the interest rate on default-free bonds. If, instead, investment is irreversible, the imputation rate must be higher, in order to compensate for the discouraging effects of irreversibility.

JEL-codes: H25 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (13)

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