The Net Present Value Effective Tax Rate

Jim Musumeci, Richard C. Sansing
2010 Social Science Research Network  
This study evaluates the use of the long-run cash effective tax rate (ETR) as a measure of the extent to which a corporation's projects are tax-favored or taxdisfavored. We first derive a measure of the extent to which a project is tax-favored that is independent of the project's financial accounting treatment. We argue that our measure, which focuses on the present value of the government's tax collections from the project, is superior to the traditional measure that compares the pretax and
more » ... er-tax internal rates of return of the project. We then use our measure as a benchmark with which to examine the relation between the ETR and tax preferences. We find that the long-run cash effective tax rate is an unreliable tax preference measure, even when the asset is depreciated for financial reporting purposes at the rate at which its productivity declines.
doi:10.2139/ssrn.1703494 fatcat:gxrpkjvgije53i7wcy5lsqpqqq