Corporate Taxation and Investment: The Case of the Split Rate Corporate Tax System in Macedonia

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Ilija Gruevski
Stevan Graber


The majority of experts agree that taxes are distortionary in nature. This is relatively true for all of the different groups of taxes, but for the corporate taxes is exceptionally obvious. The existence of the corporate tax system can affect the company’s behavior in number of ways and one of the most criticized is the ability for distortion of the choice of the sources of finance. In the following article, we explore the effects from corporate taxation on investment, through the methodological frame of the effective marginal tax rates. The objective is to analyze the investment decision in the case of isolated implementation of corporate taxes which means that the effects from the so-called “double taxation”, induced by the personal taxes are not taken in consideration. We hope to prove that these conditions generate “uneven” distribution of the burden across the projects covered with different sources of finance. Also, we intend to test and explore the properties of some alternative corporate tax systems which are widely known as neutral, such as: the comprehensive business income tax system (CBIT), the imputation corporate tax system (ICT), the full imputation corporate tax system (FICT), the allowance for corporate equity tax system (ACE) and the split rate corporate tax system (SRCT).  In addition, we support our findings with a practical example: the case study from the implementation of the split rate corporate tax system in Macedonia.

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