Application: What Is Economic Depreciation?

The Case of Personal Computers 711

Corporate Tax Rate 712
Investment Tax Credit 712

24.3 The Incidence of the Corporate Tax . . . . . . . . . . . . . . . 713

24.4 The Consequences of the Corporate Tax for Investment . . . 714

Theoretical Analysis of Corporate Tax and Investment Decisions 714
Negative Effective Tax Rates 719
Policy Implications of the Impact of the Corporate Tax on Investment 719
Application: The Impact of the 1981 and 1986 Tax Reforms on Investment
Incentives 720
Evidence on Taxes and Investment 721

24.5 The Consequences of the Corporate

Tax for Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 722
The Impact of Taxes on Financing 722
Why Not All Debt? 723
The Dividend Paradox 726
How Should Dividends Be Taxed? 727
Application: The 2003 Dividend Tax Cut 728
Corporate Tax Integration 729

24.6 Treatment of International Corporate Income . . . . . . . . . 730

How to Tax International Income 730
Application: A Tax Holiday for Foreign Profits 731

24.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 734

Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 734

Questions and Problems . . . . . . . . . . . . . . . . . . . . . . . . . . 735

Advanced Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 736

CHAPTER 25 Fundamental Tax Reform . . . . . . . . . . . . . . . 737

25.1 Why Fundamental Tax Reform? . . . . . . . . . . . . . . . . . . 738
Improving Tax Compliance 739
Application: Tax Evasion 739
Application: The 1997 IRS Hearings and Their Fallout for Tax Collection 742
Making the Tax Code Simpler 743
Improving Tax Efficiency 745
Summary: The Benefits of Fundamental Tax Reform 748

25.2 The Politics and Economics of Tax Reform . . . . . . . . . . . 748

Political Pressures for a Complicated Tax Code 749
Economic Pressures Against Broadening the Tax Base 749

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