Nonlinear Taxation of Risky Assets and Investment, with Application to Mining

33 Pages Posted: 19 Jun 2004 Last revised: 11 Sep 2022

Date Written: June 1988

Abstract

An intertemporal capital asset valuation approach is applied to analyzing the effects of nonlinear taxes on asset values and optimal investment decisions. The method is quite general, and is illustrated both analytically and numerically, The paper studies the effects of nonlinearities in the corporate income tax, including the percentage depletion allowance, on mine values and investment decisions. Although the tax policies are found to have the expected effects on asset values, the effects on investment decisions are sometimes perverse. An increase in the income tax rate may encourage investment; an increase in the depletion allowance subsidy may discourage investment.

Suggested Citation

MacKie-Mason, Jeffrey K., Nonlinear Taxation of Risky Assets and Investment, with Application to Mining (June 1988). NBER Working Paper No. w2631, Available at SSRN: https://ssrn.com/abstract=439567

Jeffrey K. MacKie-Mason (Contact Author)

UC Berkeley ( email )

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University of Michigan ( email )

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