The neoclassical Devereux/Griffith (1999) investment model that has been applied for over twenty years at the ZEW takes into account the most important rules of the national tax laws and the international tax treaties. Especially, the model considers tax rates of profit and capital taxes at the company and at the shareholder level, capital allowances, and valuation rules. In the case of cross-border investments the rules for withholding taxes and the methods for avoidance of double taxation are also included. Additionally, the national integration of the corporate income tax into the income taxation of individuals can be considered.
On the basis of these neoclassical investment theory approaches, we can estimate costs of capital, effective marginal tax rates and effective average tax rates for investment projects in an existing or proposed jurisdiction:
- Costs of capital denote the minimum pre-tax rate of return, which
an investment must earn in order to still be realized by an investor.
- Effective marginal tax rates indicate the effective tax burden on
a marginal investment which displays a low profitability.
- Effective average tax rates indicate the effective tax burden on
a profitable, inframarginal investment.
We intend to present our annually estimates of the CoC, EATRs, and EMTRs in an easily interpretable manner to policymakers and a broader audience.
01.01.2020 - 30.06.2021