Allowances for Corporate Equity in Practice

By Alexander Klemm. Social Science Research Network, 2006

120 citations recorded by the source corpus.

This paper provides an overview of full and partial allowance for corporate equity (ACE) tax systems in practice. In the recent past, ACE systems have been used in Austria, Croatia, and Italy. Brazil still applies a variant of such a system and Belgium introduced one this year. This paper summarizes the empirical literature on past ACE systems, and provides a theoretical and empirical assessment of the Brazilian ACE variant. The main finding is that the Brazilian reform introduced an ACE system for a minority of firms only, with the majority instead having a system of dividend deductibility. Despite the reduction in the tax preference for debt finance, capital structures have not changed much, but dividends have increased. Investment appears to have benefited from the reform, although the extent to which this was due to the new structure rather than the tax cut is unclear.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/a94d8dbc61cab3e1b2f3ef83189d66c42b7af2bc

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Citations in the corpus

Tax Biases to Debt Finance: Assessing the Problem, Finding Solutions (2011, background): “Evaluations suggest that these ACE reforms have actually been associated with reduced debt-equity ratios (Klemm 2007).”
Can Capital Income Taxes Survive? And Should They? (2007, unknown): “Indeed, the ACE system (option 6 in Table 3) has recently been introduced in Belgium [Gérard (2006)] and has previously been tested in Croatia [Rose and Wisswesser (1998) and Keen and King (2002)] and in Brazil [see Klemm (2006)].”