Taxation and Economic Development among Pacific Asian Countries

By Richard A. Musgrave; Ching-Huei Chang et al. | Go to book overview
3.
For the discussion of this concept and its pitfalls, see Bradford and Fullerton ( 1981) and King and Fullerton ( 1984). The fixed ρ in our case is equivalent to the "fixed-r-case" in King and Fullerton, in which we assume that arbitrage leads to an outcome in which all projects offer the same rate of return to savers before personal tax and there must be differences in the pretax rates of return on investment.
4.
See Ching-Yuan Lin, Industrialization in Taiwan, 1964-72, New York: Praeger, 1973.
7.
Tables of lifetimes of the assets in dwellings, nonresidential buildings, construction, transportation equipment, and machinery are compiled from The Life Time Tables of Fixed Assets compiled by the government. Data are available upon request.
8.
Because the cost of capital is a marginal concept, it is desirable to include in its definition as much detail as possible to maintain its intrinsic value. Whether it is measured by industry or by assets depends on the purpose of study.
9.
The weights are the proportions of investment on residential buildings, nonresidential buildings, construction, transportation equipment, and machinery by industries in each year.
10.
The marginal enterprise tax rates for 1965, 1975, and 1985 were 18 percent, 35 percent, and 30 percent, respectively.
11.
In Kwack's study, only the cost of capital financed by retained earnings was used, which is the conventional Jorgenson approach.
12.
An international comparison of the cost of capital should be treated carefully. For example, the product mixes in the electrical industry in Japan and Taiwan may be quite different. In addition, the differences in the base period used for the price index could distort the results of the comparison. In Tajika and Yui ( 1988), the base period used for the prices of capital goods and output was 1982 for U.S. data. The corresponding price indices in 1982 for Japan were 0.999 and 1.015, respectively. In our study, we used 1981 as the base period of the price indices for Taiwan. In 1982, they were 0.996 and 0.986, respectively. For the case of Korea, no prices were reported. Nevertheless, it appears that the magnitude of the distortion arising from the use of different base periods for different countries is negligible.
13.
In the case of the chemical industry in 1975, the effective tax rate was as great as 2.23. It is estimated from equation (10) with the values ρ = 0.1100, q + ̇/q = 0.2062, c = 0.3626, p = 0.5481, q = 0.6290, and δ = 0.2379.
14.
Tajika and Yui ( 1988) use this device to distinguish between differences arising from taxation and those from price changes. However, if prices are highly volatile in either country, this device could also be used to avoid the effects of any erratic price jumps in the effective tax rate.

References

Auerbach, Alan J., "Wealth Maximization and the Cost of Capital," Quarterly Journal of Economics, August 1979, 93( 3), pp. 433-446.

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