SQ2Tax on Capital and Investment

SQ2Tax on Capital and Investment - Effective Tax Rate on...

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Unformatted text preview: Effective Tax Rate on Capital, 2005 cm i/GD_P * ’m ”cop. Australia* 24.1 25.7 Korea (Rep. of) 30.8 30.1 Austria 19.4 21.2 Luxembourg 21.9 21.4 Belgium 21.4 21.4 Mexico* 16.7 22.0 Canada* 39.0 21.0 Netherlands 25.0 19.2 Czech Republic 17.7 26.4 New Zealand* 29.3 24.6 Denmark 19.8 20.9 Norway 25.1 20.6 Finland 22.9 20.2 Poland“ 20.2 20.0 France 33.3 20.2 Portugal 13.5 22.3 Germany 36.9 17.2 Slovak Republic* 9.1 26.3 Greece 29.3 23.8 Spain 27.3 29.7 Hungary 18.2 23.7 Sweden 12.1 17.1 Iceland 12.1 28.6 Switzerland* 17.0 20.4 |reland* 13.7 25.0 Turkey 6.4 24.8 Italy 36.2 20.9 United Kingdom 21.7 16.8 Japan* 33.6 22.7 United States* 37.7 19.2 Note: ETR is effective tax rate on capital in 2005, in percent. I/GDP is the ratio of gross capital formation to GDP, in percent, for 2005. *For countries with an asterisk, the I/GDP is for 2004 because the OECD did not report 2005 data. Sources: ETR from Jack M. Mintz, The 2005 Tax Competitiveness Report (Toronto: C. D. Howe Institute, 2005): Table 2, p. 6. I/CDP from Organization for Economic Cooperation and Development, stats.oecd.org/whos/default.aspx? datasetcode=SNA_ TABLE 1. Table 4.2 shows effective tax rates on capital for countries in the Organization for Economic Cooperation and Development (OECD) in 2005. The effective tax rate on capital ranges from 6.4 percent in Turkey to 39.0 percent in Canada. Also shown are the ratios of gross investment to GDP in each of these countries. Because an increase in the effective tax rate on capital increases the tax-adjusted user cost of capital, we would expect countries with high effective tax rates on capital to have low rates of investment, all else being equal. Even though all else is not equal across countries—that is, even though other factors such as the expected future marginal product of capital differ across countries—the data in Table 4.2 indicate a negative‘relationship between the effective tax rate on capital and the ratio of ‘ investment to GDP. (The correlation between the effective tax rate on capital and , the ratio of investment to GDP is —0.21.) ...
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