Asymmetric Treatment of Tax Losses

Abstract

The current asymmetric taxation of business gains and losses causes the effective tax rate to exceed the statutory tax rate. Resulting different effective tax rates across different investment and business structure choice options distort the choices among these options with a loss of efficiency. A potentially important automatic stabiliser also is lost. An ideal solution would combine refunding losses together with the removal of tax expenditures. Neither reform component seems achievable in the immediate future. A more likely reform strategy would involve a combination of carry back of losses and indexation of losses carried forward. This strategy would reduce distortions arising from the ..