AltInst: Business Tax to Smooth Business Cycles

"The Fair Tax: A Tax Proposal to Smooth Business Cycles,
 Encourage Investment and Remove Biases Against Small Firms"

      BY: ANDREW WEISS
              Boston University

Paper ID: Boston University, Industry Studies Program Discussion
           Paper #87
    Date: March 1998

 Contact: ANDREW WEISS
   Email: Mailto:aweiss@bu.edu
  Postal: Boston University
           Industry Studies Program, Department of Economics
           Boston, MA 02215 USA
   Phone: (617)353-3086

ABSTRACT:
 This paper shows that giving tax payments to firms suffering
 losses would decrease the volatility of the business cycle,
 reduce the tax biases against small firms and new ventures,
 mitigate distortions caused by capital market imperfections, and
 encourage risk taking. These tax credits would move the
 corporate tax code closer to symmetry, by having the government
 share in both profits and losses. Since losses are greatest
 during recessions the tax credits would prevent some recessions
 and mitigate the severity of others. The transfers would have
 their greatest effects on the regions and industries in which
 slumps are most severe. Fraud could be controlled by using the
 payments only to purchase debt or equity held by unaffiliated
 investors.

Robin Hanson
hanson@econ.berkeley.edu http://hanson.berkeley.edu/
RWJF Health Policy Scholar, Sch. of Public Health 510-643-1884
140 Warren Hall, UC Berkeley, CA 94720-7360 FAX: 510-643-8614

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Received on Fri Oct 2 02:31:07 1998