DP684 Evaluating the Minimum Asset Tax on Corporations: An Option Pricing Approach
|Author(s):||Antonio Estache, Sweder van Wijnbergen|
|Publication Date:||June 1992|
|Keyword(s):||Brazil, Minimum Asset Taxes, Option Pricing, Tax Incentives, Uncertainty|
|Programme Areas:||Applied Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=684|
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.