Discussion paper

DP684 Evaluating the Minimum Asset Tax on Corporations: An Option Pricing Approach

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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Citation

van Wijnbergen, S and A Estache (1992), ‘DP684 Evaluating the Minimum Asset Tax on Corporations: An Option Pricing Approach‘, CEPR Discussion Paper No. 684. CEPR Press, Paris & London. https://cepr.org/publications/dp684