Chap017 - Chapter 17 The Corporation Tax Chapter 17 The...

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Chapter 17 – The Corporation Tax Chapter 17 – The Corporation Tax 1. This statement suggests that corporations are people with independent abilities to pay, a view that parallels the legal status of corporations. Economists believe that only people have an independent ability to pay. 2. a. The real value of depreciation allowances, Ψ of equation (17.1), falls. b. When Ψ falls, the user cost of capital increases. c. Index appreciation allowances. 3. If the $20 million is expensed, the firm gets a deduction of $20 million in the current year. If the $20 million is depreciated, the deductions are spread over time (in a way that depends on the specifics of the depreciation schedule). The present value of the future flow of deductions is less than $20 million. Because the package design will yield benefits that extend over a period of time, it would seem sensible to view it as a capital expenditure. If so, depreciation is appropriate, and the IRS was right. 4. Under a strict Haig-Simons rule, there would not be any separate corporate tax at all. Given that there is a corporate tax, the spirit of the Haig-Simons criterion is that different
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This note was uploaded on 12/18/2010 for the course ECON 2003 taught by Professor Tong during the Fall '10 term at Uni. Southampton.

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Chap017 - Chapter 17 The Corporation Tax Chapter 17 The...

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