THE IMPORTANCE OF REPORTING CONVENTIONS FOR THE THEORY OF CORPORATE-TAXATION

This paper shows that for the analysis of a tax policy, it is important to be explicit about the reporting convention to which a corporation tax is required (or allowed) to adhere. The paper shows that the corporation tax cannot be used to alter capital formation under uniform reporting, a convention required by the majority of the OECD countries. This tax is, however, a more useful policy tool in those OECD countries that have created the privilege of separate reporting. Fiscal depreciation makes the marginal valuation of equity differ from the marginal valuation of capital. Use of tax allowances directed to investment stimulus operates rather differently under the two reporting conventions.