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The Effect of Corporate Tax Cut on the Market

Corporation tax is a tax on profits of corporations (joint stock companies). It can be collected using both the progressive scale of taxation (for example, in the US) that provides several levels of income and the use of increasing (progressive) tax rates for each subsequent level, or the flat scale, where one rate applies to all income levels (for example, income tax from individuals in Russia).

The effect of corporate taxes on the company’s investment attractiveness is one of the central issues of public finance. In practice, serious financial decisions are never made by organizations without regard of tax consequences. As the number of studies show, this effect is of great importance not only for the evaluation and development of tax policy, but also has a significant impact on the financial value of the company. In general, these studies reflect the negative impact of corporate tax growth on the market value of the company, although, they offer a variety of estimation of such influence.

However, a recent study by Desai and Dharmapala shows that the decrease in the total tax burden does not increase the value of the company. The positive effect was only found for the subsample of firms with a high level of corporate governance. Research by Bryan, Mills, Lillian, and Connie about the impact on the market price of shares of US companies and announcement of their intention of expatriation in tax havens also indicates the absence of a statistically significant market reaction to these decisions.

With the development of market relations, one of the main objectives of economic reforms is the formation of effective tax mechanism as a tool of the market economy, which allows us to solve the problem of how to increase revenue budgets of different levels, and contributes to the progressive development of individual businesses and the economy as a whole. The tax system is one of the key economic regulators.

According to the report of the Joint Committee of Congress on Taxation, which conducted studies on the economic impact of three separate proposals for tax cuts, the reduction of the corporate tax is (in contrast to the tax on property of individuals) will provide a significant economic benefits in the long run.

The study investigated the effect of the corporate tax cut and the tax on capital gains for 20%, and an increase in personal income, exempt from taxation by 65% to $5,200 including inflation.

According to the report, the decline in corporate tax would be the best solution in achieving long-term economic benefits by increasing the amount of productive capital, which is designed to increase productivity.

Corporation tax is a tax on profits of corporations (joint stock companies).

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Assignment ID
100001520
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CREATED ON
August 28, 2016
COMPLETED ON
August 29, 2016
Price
$18
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fatimahrahim98
November 29, 2016
fatimahrahim98
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November 21, 2016
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November 21, 2016
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