Does the Tax System Favor Investment in High-Tech or Smoke-Stack Industries?

19 Pages Posted: 8 Feb 2001 Last revised: 7 Mar 2015

See all articles by Don Fullerton

Don Fullerton

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Andrew B. Lyon

PricewaterhouseCoopers LLP

Date Written: April 1985

Abstract

When tax rates vary by asset, a "hidden" industrial policy may aid industries that invest in a certain mix of assets. In this paper, we examine whether differential use of depreciable assets gives rise to differential tax treatment of high technology industries relative to other industries. First, we calculate the total effective tax rate on a marginal investment in each of 34 assets. Next, using these asset-specific tax rates and weighting by the use of these assets in each of 73 different industries, we calculate total effective tax rates at the industry level. We find considerable variation within the high-tech sector and within the more traditional sector, but for the case of a taxable firm with a given debt/equity ratio, we do not find any systematic differences between overall rates in the two sectors.

Suggested Citation

Fullerton, Don and Lyon, Andrew B., Does the Tax System Favor Investment in High-Tech or Smoke-Stack Industries? (April 1985). NBER Working Paper No. w1600. Available at SSRN: https://ssrn.com/abstract=238150

Don Fullerton (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 244-3621 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Andrew B. Lyon

PricewaterhouseCoopers LLP ( email )

600 13th Street, NW, Suite 1000
Washington, DC 20005
United States
202-414-3865 (Phone)

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