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Title: Evaluating the Minimum Asset Tax on Corporations: An Option Pricing Approach

Author(s): Antonio Estache and Sweder van Wijnbergen

Publication Date: June 1992

Keyword(s): Brazil, Minimum Asset Taxes, Option Pricing, Tax Incentives and Uncertainty

Programme Area(s): Applied Macroeconomics

Abstract: King-Fullerton methodology cannot assess the minimum-asset tax (MAT) because it cannot handle uncertainty. We present an alternative based on option pricing, and show how carry-over rules, depreciation conventions and uncertainty affect the MAT burden. Using Brazilian data, we show that: (a) because of the high intersectoral variance of capital intensity, the MAT does not reduce sectoral distortions; and (b) while high variance raises the MAT burden, high risk firms are not hit harder by the MAT: high-risk firms also have a high rate of return, which reduces the impact of the MAT.

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Bibliographic Reference

Estache, A and van Wijnbergen, S. 1992. 'Evaluating the Minimum Asset Tax on Corporations: An Option Pricing Approach'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=684