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
JEL(s):	H21, H25
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.