Taxation and Economic Development among Pacific Asian Countries

By Richard A. Musgrave; Ching-Huei Chang et al. | Go to book overview

weighted average of the four kinds of enterprise income tax treatments, five types of fixed assets, three kinds of enterprise income tax treatments, five types of fixed assets, and three methods of investment financing.

Our estimated results show that the provisions on enterprise income tax in SEI achieved the purpose of imposing different tax rates on different industries. The cost of capital financed by debt is lower than by other methods. No matter how it is financed, the cost of capital and the effective tax rate are sensitive to the discount rate. Because the discount rate was high, the introduction of a tax incentive scheme did not reduce the cost of capital very much. The effective tax rate shows that the tax structure was more discriminatory in the 1980s than in other years and reflects the changes in incentive schemes that its counterpart, the double taxation rate, does not include.

There is room for improvement and further research. Assumptions about the depreciation rate and the tax rate on capital gains need to be reexamined. It is important to incorporate the import-duty exemption into the cost-of-capital formula because the tariff rates in Taiwan were high in the 1960s and 1970s. Also, a careful comparison of the costs of capital and effective tax rates among different countries estimated by the same methods may shed light on the source of capital formation and productivity. Econometric studies of the effects of the cost of capital on investment expenditure would also be helpful in telling us how successful the tax policy has been in stimulating capital formation in Taiwan.


Notes

The authors are indebted to Richard A. Musgrave, Keimei Kaizuka, Chu-wei Tseng, Ching-huei Chang and Chung-lin Hsieh for discussions and comments. We would like to express our appreciation to Wen-rong Lien for his calculation and to Show-ming Wang for typing the manuscript for this chapter.

1.
The cost of capital, as defined in the chapter, is the total cost of using capital in production rather than just the cost of funds. It is equivalent to "user cost of capital" in Jorgenson ( 1963, p. 249) or "the rental price of capital services" in Hall and Jorgenson ( 1967, p. 393).
2.
The Euler equation is one of necessary conditions for an optimum for problems solved using the calculus of variations, in which the objective function Vt depends on both the decision variable Kt+i and its rate of change Kt+i = Kt+i - Kt+i-1. For the current problem, the Euler equation is

Another condition necessary is δVt/δLt+i, which yields the marginal product of labor to the real wage rate. See Intriligator ( 1971). For the treatment of investment in discrete terms, see Brechling ( 1975).

-137-

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Taxation and Economic Development among Pacific Asian Countries
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • 1 - Introduction 1
  • Notes 10
  • 2 - Indonesian Tax Reform, 1985-1990 11
  • Notes 41
  • References 42
  • 3 - The Tax System and Economic Development in Japan 44
  • Notes 61
  • References 62
  • 4 - Tax Reform in the Philippines 64
  • Notes 80
  • 5 - Tax Reform in Malaysia: Trends and Options 82
  • Notes 100
  • References 101
  • 6 - Property Taxation as a National Policy Tool in Taiwan 104
  • Notes 116
  • References 116
  • Notes 137
  • References 138
  • 8 - Effective Corporate Tax Rates on Capital Income in Hong Kong 140
  • Notes 153
  • 9 - Tax Policy and Business Investment: Taiwan's Manufacturing Industry 156
  • Notes 165
  • References 167
  • 10 - The International Dimension of Korean Tax Policy 168
  • Notes 191
  • References 192
  • 11 - Tax Incentives for Export Promotion in Japan, 1953-1964 194
  • Notes 207
  • References 208
  • 12 - International Aspects of Income Taxation in Taiwan 210
  • Notes 221
  • References 223
  • 13 - Financing Social Security in Singapore Through the Central Provident Fund 225
  • Notes 255
  • References 255
  • 14 - A New Role for Fiscal Policy and Tax Finance in Korea 259
  • Notes 275
  • References 276
  • About the Book 280
  • About the Editors and Contributors 281
  • Index 283
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