Abstract
We have already noted several examples of ambiguity in the concept of an investment incentive. An incentive is an improvement on something; but what is it an improvement on? Accelerated de-preciation is faster than ‘normal’ depreciation; but what is ‘normal’? Generous carry-forward provisions are an incentive by comparison with restrictive provisions; but they are not an investment incentive if they are part of the ‘normal’ system, since incentives are a deviation from this system, and yet the ‘normal’ system varies widely from one country to another. And so on.
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Reference
In Luxembourg there are particular reasons for a high ratio of income taxes relatively to taxes on goods and services. Taxes on goods and services are relatively light; and the yield of income taxes is increased by a tax regime that attracts corporations from abroad.
Barry Bracewell-Milnes: Is Capital Taxation Fair? (Institute of Directors, London, 1974), pages 76–82, 88–91, 111–114; The Measurement of Fiscal Policy (Confederation of British Industry, London, 1971), Chapter VII B.
The Measurement of Fiscal Policy, Chapters IV, VII C.
The figures in column (4) are not strictly comparable, since those for Belgium, Germany and Ireland are calculated on the old System of National Accounts and those for the other countries on the new SNA; but this probably makes little difference in practice.
Is Capital Taxation Fair? pages 77–78.
See Glossary. For example, if spending is taxed at a tax-inclusive rate of 20% and saving is taxed at (i) 20% (ii)50% (iii) 80%, then the opportunity cost of saving is (i) 1 (ii) 1.6 (=.80-.50) (iii) 4(=.80-.20) and the opportunity cost of spending is (i) 1 (ii) 0.625 (=.50-.80) (iii) 0.25 (=.20-.80).
The conclusion that saving is generally overtaxed is much strengthened by the argument that taxes on spending bear equally on saving because the value of saving depends on its purchasing power, which bears the full weight of taxes on spending. (Is Capital Taxation Fair? pages 59, 89).
The definition of ‘investment incentive’ given in Chapter II does not require alteration because it is a relative definition (relative to the situation without the incentive).
Piet W. Moerland: Optimal Firm Behavior under Different Fiscal Regimes (Fiscaal-Economisch Instituut, Erasmus Universiteit Rotterdam, Discussion Paper Series on Public Economics, Number 7507, November 1975).
F Modigliani and M.H. Miller: The Cost of Capital, Corporation Finance and the Theory of Investment (American Economic Review, Volume, XLVIII, June 1958, page 261; also 1963, page 433).
Barry Bracewell-Milnes: The CameVs Back: An International Comparison of Tax Burdens (Centre for Policy Studies, London, 1976), Section H and Appendix.
In a discussion of constitutional limitations on discriminatory activities The Tax Expenditure Concept and the Budget Reform Act of 1974 (Boston College Industrial and Commercial Law Review, June 1976), Stanley S. Surrey and Paul R. McDaniel point out that the United States courts have ‘in several instances acted to subject tax assistance to the restrictions that would apply to direct programs’. They consider that ‘the lawyers involved in litigating in this area have not yet fully perceived the significance of the tax expenditure concept, and hence the courts have yet to effectively utilize it.’ (Page 708). Another possible explanation is that constitutional limitations are inapplicable to tax expenditures in areas where they apply to direct expenditures and that the lawyers involved have perceived that this is so.
The German coal reserve is not an example of such measures, since its purpose was merely to avoid a fall in employment in mining districts as a result of expected mine closures (Chapter V, page 61).
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© 1977 Springer Science+Business Media Dordrecht
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Bracewell-Milnes, B., Huiskamp, J.C.L. (1977). Incentives and discouragements. In: Investment Incentives. Springer, Dordrecht. https://doi.org/10.1007/978-94-017-4408-9_9
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DOI: https://doi.org/10.1007/978-94-017-4408-9_9
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