Replacing Corporate Income Tax with a Cash Flow Tax

Ross Garnaut, Craig Emerson, Reuben Finighan, Stephen Anthony

    Research output: Contribution to journalArticle

    Abstract

    We design a parsimonious cash flow tax for Australia and estimate revenue effects. It allows immediate deduction of all capital expenditures, denies deductions of interest payments, and compensates negative cash flows at the same rate and time as it taxes positive cash flows. It allows taxpayer timing choice on implementation over 10 years. It has incentive effects comparable to lowering the corporate income tax rate to zero. It removes distortions that artificially favour debt over equity, short- over long-term investments, rents over competitive returns, large, established over small and new businesses, and conventional over innovative investments. It closes international tax evasion loopholes. Its spur to investment and timing of revenue impacts favours implementation in recession.
    Original languageEnglish
    Pages (from-to)463-481
    JournalThe Australian Economic Review
    Volume53
    Issue number4
    DOIs
    Publication statusPublished - 2020

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