The Incidence of an Extended Ace Corporation Tax

25 Pages Posted: 11 Jul 2001

See all articles by Hans Fehr

Hans Fehr

University of Würzburg - Institute of Economics and Social Sciences

Wolfgang Wiegard

University of Regensburg - Institute of Business Management; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 2001

Abstract

This paper deals with the efficiency and distributional consequences of a switch from the current German income and corporate tax system to one special variant of an intertemporally neutral tax, an extended ACE (allowance for corporate equity) corporation tax. This tax is favoured by the IFS Capital Taxes Group and was implemented in Croatia in 1994. We not only calculate the welfare consequences of introducing the ACE, but also separate the efficiency effects from intragenerational as well as intergenerational redistribution. The quantitative analysis is based on a dynamic simulation model of the Auerbach-Kotlikoff type which distinguishes between five income classes within each generation. The numerical results indicate that such a fundamental tax reform could yield enormous efficiency gains without necessarily increasing income inequality.

Keywords: Corporate Taxation, Intra- and Intergenerational Incidence, Dynamic CGE Modeling

JEL Classification: C68, H22, H25

Suggested Citation

Fehr, Hans and Wiegard, Wolfgang, The Incidence of an Extended Ace Corporation Tax (May 2001). Available at SSRN: https://ssrn.com/abstract=273360 or http://dx.doi.org/10.2139/ssrn.273360

Hans Fehr

University of Würzburg - Institute of Economics and Social Sciences ( email )

Sanderring 2
D-97070 Wuerzburg
Germany
0931- 31 29 72 (Phone)
0931- 888 71 29 (Fax)

Wolfgang Wiegard (Contact Author)

University of Regensburg - Institute of Business Management ( email )

D-93040 Regensburg
Germany

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

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