The personal income tax rate equal 40% and the corporate income tax rate equals 25%. Suppose the tax law allows expensing (支出化) for a purchase of capital. The aftertax rate of return (r) equals 25% and the economic rate of depreciation (δ) equals 15%. The investment tax credit rate (k) equals 25%.

• (5%) Please derive the tax-adjusted user cost of capital when the corporate income tax and the personal income tax was integrated.

• The integration of the corporate income tax and the personal income tax in Taiwan was abolished in 2018. What is the percentage change in the user cost of capital, ∆c/c , the abolishment would induce?

• A recent study estimated the elasticity of investment in wind energy with respect to the user cost of capital to be about -2. What percentage of change would the abolishment of the tax integration in 2018 affect the investment in wind energy?

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5 Please derive the taxadjusted user cost of capital when the corporate income tax and the personal ... View the full answer