The allowance for corporate equity (ACE) tax system provides a deductible allowance
for corporate equity in computing taxable corporate profits,
similarly to the deduction ofinterest payments in corporate income tax systems.
The cost of
capital of (marginal) equity-financed investment might decrease because the normal
return on equity is not taxed at the corporate level.
Moreover, corporate tax revenues will decline if the corporate tax rate does not increase to
compensate for the ACE allowance. However, an increase in the corporate tax rate will have
negative effects on investment and on the location decisions of (especially) profitable
corporations and it will increase the transfer pricing problems.
If the ACE allowance is
financed by a corporate tax rate increase, the reduction in the effective corporate tax levied
on the less profitable firms’ profits will be financed by an increase in the effective corporate
tax rate levied on the profits of the more profitable firms.
In order to prevent the adverse
effects of a corporate tax rate increase, governments might try to find other ways to finance
the ACE allowance.
すみません。文頭の「法人税収が」は、「法人税率が」です。失礼致しました。