Download Marginal Effective Tax Rates (METR)

Working Paper 2007-1
How the Border Behaves as a Tax
Application of the Marginal Effective Tax Rates (METR)
methodology to issues of increased border security *
David Gillen
Centre for Transportation Studies
Sauder School of Business
University of British Columbia
Vancouver, BC
Email: [email protected]
Alicja Gados
Centre for Transportation Studies
Sauder School of Business
University of British Columbia
Vancouver, BC
Copyright © 2007 by Centre for Transportation Studies
Introduction
The METR is a powerful analytical concept and tool that measures the effectiveness of taxes at the
margin. The government may wish to induce industry to invest in certain projects or technologies
that may have economy-wide effects or positive externalities. They can induce the private sector to
make these investments by altering tax policies, and they can use METR to measure their
effectiveness. The impact of investment incentives can be discovered by computing how the METR
is affected by each individual incentive. The benefit is that variables can be measured in isolation.
Our argument is that the concept of marginal effectiveness can be applied to border policies. Since
9/11, the border has become a subject of stricter security controls and protocols and has effectively
become a stronger barrier to trade. Problems are caused by constrained border resources and
increased demand exhibited in increased delay time. It is causing inefficiencies for commercial
vehicles (CVO). In addition strict security checks are causing even more congestion, and increased
variability. This means that delay time has a high variance. This causes scheduling inefficiencies
and prevents the industry from reaching equilibrium.
The Marginal Effective Tax Rate
The marginal effective tax rate, or METR measures the tax wedge at the margin for a given type of
capital demand, or the extent to which the tax system affects the marginal rate of return from
holding the asset. The METR provides a summary measure of the cumulative tax distortion on a
marginal investment decision (McKenzie 1994). METR is the difference between the gross of tax
rate of return to capital at the margin in the private sector and the rate of return received by savers
after tax (Boadway, Bruce et al. 1984). Marginal effective tax rate (METR) calculations have been
widely investigated by the World Bank. McKenzie and Mansour (1998), McKenzie et al (1997),
McKenzie (1994), McKenzie et al (1992), Boadway et al (1984), Boadway et al (1987), Boadway
and Shah (1992) and Chen (2000), have explored this area in detail.
The METR is the effective tax rate on marginal revenue, or the revenue generated by the last unit,
marginal cost, of capital invested (Chen 2000). It is evaluated as the effective tax cost as a share of
MC, net of economic depreciation. Firms pay income tax on the revenue generated by their capital
investment, but reduce cost by writing off the cost of debt, they also defer tax liabilities. The pre tax
rate of return is the same as the pre tax cost of capital or the net of economic depreciation, and the
METR is the ‘wedge’ between that rate of return and the post tax return on capital, expressed as a
fraction of the pre tax return. The METR can be applied to depreciable and non -depreciable assets
as well, such as land and inventory, where depreciation (economic and tax) is zero. The marginal
involves measuring the before tax rate of return on savings.
* Research funded by a grant from the Bureau of Intelligent Transportation Systems and Freight
Security.
1
METR methodology has several limitations. They measure only the size of the impact of tax
measures on rate of return, and not responsiveness of investment. This means the usefulness is
limited to making qualitative judgments to compare alternate investments. The drawback arises
from the lack of technique to empirically measure investment demand. The positive benefit of using
METR is it isolates tax considerations completely from others (McKenzie 1994). METR
comparisons are made to show tax distortions across asset types and industries within a tax
regime, or to evaluate the competitiveness of tax regimes. The comparisons help investors allocate
their capital in response to variations in tax burdens. As such, it helps policymakers revaluate
distortions within their jurisdictions.
When studying METRs key assumptions made are that markets are perfectly competitive, firms
behave as profit maximizers, and capital is fully mobile. The tax comparisons are meaningful
because a firm is free to enter and exit a market, taxes will affect the investment decision. Among
all tax comparisons, only the METR matters because it alone bears on the decision making margin
(Chen 2000). However it is only good for evaluating the tax factors that bear on capital allocation
decisions. It tells a comparative story about tax systems but does not reveal other underlying
factors that may be relevant, and non-tax factors may play a more important role in investment
decisions.
The information content of METRs is limited. While it shows the size of the incentive imposed on
the margin on a particular sort of investment decision, it does not show the magnitude of response
to the incentive, nor the tax revenue effects to public sector. While METR calculations will be useful
for analyzing tax reform issues they will be less so for the positive analysis of the effect of
incentives on economic activity (Chen 2000).
Average or marginal tax rate?
The average effective tax rate, AETR and the marginal effective tax rate, METR, are two very
different methodologies not to be confused because they are very different indicators. The AETR is
a numeric ration of total taxes to pre-tax return for a set of one or more investment projects; it is a
number featured in an income statement but does not have much use economically. It is not useful
in decision making or forecasting, but it is a historical representative and an ex ante variable. It is
marginal, not average factors that drive investment decisions. In METR, the word effective
emphasizes all tax provisions, tax allowances, inventory accounting methods, and so on. With an
AETR, effective represents the taxes incurred, but does not account for non-tax features of the
investments.
The expected pre tax on capital income is the expected pretax rate of return on a new marginal
investment, divided by the pretax rate of return. (Fullerton 1995). METR can account for detailed
provisions of the tax law. The METR is a forward-looking measure that summarizes the incentives
to invest in a particular asset as provided by complicated tax laws. It bears little relation to an
average tax rate 1, because that measures averages over taxes on income from all past investment.
Estimates of METR will depend on particular assumptions about equilibrium in capital markets, rate
of discount, inflation, expectations, financing, risk, and dividends. The simplest example is drawn
from a world with no uncertainty.
1
Actual tax paid in a year divided by the actual capital income in that year
2
METR: exploration of a concept
There are many ways of encouraging investment. The effects can be measured with METR. First,
reductions in tax rates, whether permanent or temporary, can affect the sign of METR. This can be
either positive or negative depending on the generosity of deductions and credits for capital costs.
In the absence of investment tax credits, a corporate income tax will be neutral if the present value
of deductions for capital costs, interests and depreciation just equal the initial cost of capital (Chen
2000). If present value of deductions exceeds the initial capital cost, the METR is negative, et
cetera. If the effective tax rate is already negative, reductions will make it less negative, thereby
reducing the incentive that already exists for investment. This is the ambiguous effect of tax rate
reductions is because tax rate applies to both deductions and revenues. Measures which apply
only to deduction side would be expected to have unambiguous effects of the direction of change
in incentive to invest (Chen 2000).
Chen (2000) gives examples to explain METR. Suppose a firm wishes to diversify through capital
investment, and the pretax return profile is the same across all sectors, the firm will chose the
investment that offers the lowest effective tax rate on capital investment in Canada. Or suppose a
manufacturer wishes to expand operations within NAFTA boundaries. The decision will be based
on which country offers the most attractive net return on capital. This is not surprising, as any
rational investor will allocate capital to maximize profit. In a market with free entry, profit from every
dollar invested will grow as long as the revenue from the last dollar invested, or the marginal
revenue is greater than the cost of that dollar invested, or the marginal cost. Neoclassical theory
dictates that profit from the investment is maximized when marginal revenue equals marginal cost.
(Chen 2000).
Tax policy affects marginal revenue and cost: taxes reduce marginal revenue and tax allowances
reduce marginal cost. At the profit maximizing point, where marginal revenue equals marginal cost,
the combined effect on marginal revenue, or cost, is the METR. The METR is the wedge between
the before tax and post tax rates of return on capital, expressed as a percentage. Given equal nontax considerations, a rational investor will invest in the sector where METR is lowest. To the extent
taxes play in an investment decision, the only tax rate that matters for capital allocation is the
METR (Chen 2000).
Taxing Inputs
The government wishes not to tax business inputs, but inherently does so via several tax
structures, such as a through a retail sales tax (McKenzie, Mansour et al. 1998). To calculate
METR on inputs, McKenzie records four types of tangible capital (structures, machinery, land and
inventories) and two types of intangible capital and labour.
When looking at the impacts of taxation, it is important to look at if they are marginal and
incremental economic decisions. The decision to hire one additional worker, employ an additional
unit of capital, increase output by an additional unit. The METR is the amount of tax arising from
the decision of a firm to undertake one more unit of economic activity. In the case of capital, the
activity is the employment of an incremental unit of capital, in the case of production it is the
employment of additional increment of output, in the case of security it is the employment of an
3
additional unit of “protection” (however vaguely that may be measured, since an incremental
increase in security is near impossible to quantify). The U.S. Department of Homeland Security
(DHS) measures the level of security via a threat indicator; 2 this may be used as their baseline for
calculating the level of security that needs to be increased at borders.
Because incremental effects of an increase of one variable are estimated, a positive METR
indicates that a certain activity is discouraged by a tax system. A negative METR indicates that the
activity is encouraged by the tax. A zero indicates neutrality, so the activity generates no tax
revenue at the margin but infra marginal units of the activity may generate tax revenue. Taxes
imposed on capital can effect both the level and composition of an economy by distorting the return
to an incremental unit of capital. The METR on capital is a summary of the size of the distortion.
Empirical research reveals that taxes levied on capital discourage investment to some extent. Interasset distortions can arise as well. Differences in METRs across capital can create inter-industry
distortions, and over time, across assets, among sectors and jurisdictions (McKenzie, Mansour et
al. 1998). The METR can be distributed like a contagion throughout the firm. Impacts demonstrate
the co movement in cross-market linkages. Close market trade linkages explain the mechanism of
contagion (Gillen and Lall 2003). These capital distortions are important because it can lead to a
reduction in level of goods and services produced, or efficiency costs of capital taxation. Also,
taxes on capital may also effect the rate of growth of the economy through their impact on
investment.
McKenzie et al (1998) distinguishes between two basic types of METRs. The METR on inputs,
tangible capital such as buildings, equipment, land and inventories, and intangibles like R&D,
measure the taxes incremental unit of input consumed by a firm. The second is METR on costs,
which measures the contribution of taxes levied on the various inputs to the cost of producing an
incremental unit of output. Input METRs indicate the extent to which taxes impede on the incentive
to employ these inputs, and the cost METRs (a function of input METRs) measure the impact of
the taxes on competitiveness (McKenzie, Mansour et al. 1998).
The approach taken by McKenzie for METR on costs incorporates the vertical linkages between
input and output markets. The output market is connected to the input market by the fact that the
aggregate supply curve is the horizontal sum of the marginal cost curves. The marginal cost of
providing an additional unit of output hence reflects the user cost of the various inputs, reflecting
supply and demand conditions in the input markets. Supply is a function of the vector of input
prices. The connection of input and output markets is a key measure of the METR on costs of
production. If the tax system causes costs to rise, the industry supply curve will rise. Under some
conditions, input taxes do not affect marginal costs because they do not feed through to user costs.
This happens when supply is perfectly inelastic and demand is perfectly elastic. The extent to
which they will be reflected depends upon supply and demand conditions in the user markets.
The marginal cost function will depend on level of output, productivity measures, input shares and
degree of substitutability between factors (McKenzie, Mansour et al. 1998).
His model shows that as elasticity of substitution increases, the effective tax rate on marginal costs
decreases. As the degree of substitutability rises, firm is better able to respond to changes in
2
http://www.dhs.gov/xinfoshare/programs/Copy_of_press_release_0046.shtm
4
relative factor prices by changing the input mix. A tax induced increase in the relative price of an
input as a lower impact on marginal costs, the higher the elasticity of substitution.
Policy issues often turn to the overall tax burden faced by companies. There is evidence that the
tax system, in general, rather than only taxes on capital may influence the location of production
facilities across jurisdictions (McKenzie, Mintz et al. 1997). Tax burdens can be computed in
several ways to analyze the effect. One way involves measuring the effect of corporate income and
other taxes on the return to capital, and the second involves measuring the METR on capital,
grasping the user cost of capital. However, some taxes other than those that tax capital could
influence the decision of a business to operate in a particular jurisdiction. Border congestion and
mandatory security programs could be such a tax that does not charge capital directly but
influences a firm’s decisions, including output and productivity.
Risk & uncertainty
There are different types of capital assets that may be disrupted (positively or negatively) by a
border tax (METR). The concept of risk and reversibility is explored in a paper by McKenzie (1994).
In the paper he claims that the tax system may distort incentives in risky capital to a much greater
extent than defined in previous research because the issue of irreversibility (McKenzie 1994).
The METR on costs measures the contribution of various taxes levied on inputs to the marginal
cost of production. Tax levies contribution to the marginal cost of production provides a measure of
the extent to which the tax system impinges upon the cost of doing business. Risk can dramatically
increase the METR on capital, implying that tax systems discourage firms from undertaking some
risky types of investments (McKenzie, Mansour et al. 1998). Corporate taxes distort firms investing
rules in two ways: the return on a marginal unit of capital is lowered because the operating income
it generates is taxed, and the effective price of a unit of capital is decreased owing to the flow of
depreciation deductions (McKenzie 1994).
There is also the issue of irreversibility as analyzed by McKenzie (1994). The concept of the cost of
capital is important when analyzing tax policy and investments. METRs are used regularly as an
indication that the tax system may impinge on firms’ investment decisions. METRs are an
important component for formulation of tax policy, used widely by governments and are calculated
based on a partial equilibrium dynamic neoclassical investment model. Risk and uncertainty has
been shown to dramatically increase the METR on capital, so some tax systems would discourage
firms from undertaking some types of risky investments.
In addition, there are capital investments that are essentially irreversible, and have no meaning in
other types of production. The literature treats capital investments as fully and costlessly reversible
which is inappropriate for certain types of capital. Some capital is so specialized it is only valuable
in a certain type of production. The conversion to alternate use is very costly. Since most ITS
investments are irreversible, and have no auxiliary use, would it discourage a firm from taking a
ITS investment over an alternative firm building investment? The literature suggests that CVOs are
skeptical about the new ITS technology, and adoption rates of ITS remain low. This is because the
trucking industry is driven by immediate or short term requirements on ROI. ITS investment by
5
carriers must meet several requirements, including short term ROI, managemeble per unit costs,
and ease of use to economize on labour and training costs. The objectives of the technology
should be quantifiable benefits to operational efficiency, productivity and safety (Donath 2005).
This issue raises the idea of investment decision under uncertainty.
The results of McKenzie (1994) suggest that risk and irreversibility of different types of capital
cannot be ignored because of serious alterations the measurement of tax distortions. The METR
on irreversible capital is higher than on reversible capital, and the magnitude of the distortion
depends on the type and level of risk. If capital is irreversible, METR depends on both systematic
an unsystematic income and capital risk and is increasing in all four types of risk. The extent that
capital is inflexible in use the tax system may discourage investment in risky capital more so than
currently thought.
In their model, capital is assumed on have value only if used in production, and is completely
irreversible. The type of risk is important too, as demonstrated by Bulow and Summers, that
different types of uncertainty are important as well as ex ante depreciation (Bulow and Summers
1984).
McKenzie distinguishes between two types of risk, income and capital risk. Income risk involves
the uncertainty with future income, and capital risk involves replacement value of a firms’ capital.
Income risk is associated with unknown future demand (the uncertainty of the demand function). In
his analysis, he used the risk free rate as the discount rate, which hides some effects that prove
important in the analysis of tax distortions under uncertainty. For example, the CAPM 3 capital
market equilibrium requires that the firm values its investment program as if preferences were risk
neutral, which may not necessarily be the case.
The user cost if irreversible capital differs in an important way from the expression for reversible
capital, reflecting a cost for irreversibility. When capital is fully reversible, the neoclassical result
shows the firm employs capital up to the point where the marginal unit earns just enough to cover
it’s cost, which is the opportunity cost of financing the investment plus the physical rate of
depreciation less capital gain plus a risk premium to compensate risk averse investors for bearing
systematic capital risk, for that unit of capital. In conventional analysis, where capital is considered
reversible, capital adjusts instantly to discrepancies equality between ROR and on a marginal unit
of capital and the user cost is maintained at each instant (McKenzie 1994). In the case of
irreversible capital, the firm cannot immediately lower its capital stock, but instead allows for
depreciation. When this is the case, the ability to delay an incremental investment has value in a
risky environment. Waiting to install a unit of capital is costly because it delays realization of
operating profits, but beneficial because it delays payment of unit price allows one to learn more
about behavior of the stochastic variables causing the distortion.
To determine METR in Canada, a small open economy is a price taker on international markets
and treats the required after tax ROR on equity as exogenous. This means that the risk free rate,
and systematic risk are exogenous. Investments must yield the internationally determined risk free
rate of interest net of corporate taxes, depreciation and risk.
3
Capital Asset Pricing Model
6
The case of irreversible capital also changes tax depreciation. Without uncertainty, the neutral tax
depreciation rate is the physical rate of depreciation less the rate of capital gain on a unit of capital.
But with certainty, an additional term must be added to reflect the cost of dealing with systematic
capital risk. This is because depreciation calculations are made ex ante based upon the original
purchase price of the capital, and do not fluctuate with changes in purchase price. Therefore, the
government does not share in the firm’s capital risk therefore an explicit deduction must be made
to account for it in the model. No adjustment is necessary when capital is reversible, because
under this assumption the firm’s capital fluctuates with changes in income. Income risk is implicitly
deducted under a full loss offset tax system, since the government fully shares in this type of risk
through fluctuations in tax revenues. Therefore, the government has incentive to structure the tax
rates favorably to firms.
Via calculation of METRs McKenzie provides that the Canadian tax system is decidedly nonneutral. METRs range from a low in manufacturing to a high in services, differences among the
sectors are due to variations in tax rates, tax depreciation and economic depreciation. On average,
in Canada the METR is 41.5 per cent, about 10 percentage points higher than the risk free rate. It
is greater in industries with a large risk premium (agriculture, forestry, fishing) and lower in those
with small risk premiums (retail, services). Canada discriminates significantly against investments
in capital risky assets compared to riskless assets. The conclusion is that an additional tax
distortion imposed upon risky investments due to irreversibility can be very significant, and further,
by ignoring consequences of irreversibility traditional METR estimates are under-represented by
the distortion caused by corporate income tax (McKenzie 1994).
Comparative statics can be applied to determine analytically how METR responds to different types
of risk. There are four types: unsystematic capital, systematic capital, unsystematic income and
systematic income risks. The results find though the magnitude is different for each type, the size
of the tax distortion (METR) increases with all types of risk. Valuations of METR, which ignore
uncertainty and irreversibility, understate the disincentive effects of corporate taxation. When taxes
were lowered, 4 the failure to account for uncertainty in risk in METRs may explain why strong
positive incentive effects were not observed. If they were correctly measured, they may actually
have increased.
There are two types of risk well characterized in the literature – income and capital risk. Income
risk involves uncertainty about the future stream of net revenues, because things such as price,
wage and demand are uncertain, and is reflected in fluctuations in taxable income (Chen 2000).
Full loss offsetting is equivalent to allowing deductibitlity for income risk, but not sufficient to
guarentee neutrality with respect to capital risk. Capital risk deals with uncertainty with
deprectiation after the capital is in use. Depreciation schedules are predetermined at the time of
investment, but not adjusted for with changes in actual depreciation rates (Chen 2000).
In METR, the determination of financial structure is not well developed. Therefore, tax effects
cannot form the basis for a postive analysis of the effects of taxes on the financial structure of firms
(Chen 2000). The directions of tax incentives can be deducted as well as prescriptions for tax
reform. Some studies view that only taxes matter in determining financial structures. By
concentrating on tax explanations as determinants of financial structure tax policy arguments about
how to avoid distortions of financing can be seen (Chen 2000). If financial decisions are separable
4
Canadian tax reform of 1987
7
from investment decisions, the optimizing choice of financial structure will give rise to different
equilibrium values of the costs of different sources of finance used in METR calculations.
Inducing investment
METR can be used to measure the impact of investment incentives. Investment incentives are
intended to induce firms to invest more by increasing the rate of return from holding assets. Firms
decide how much of capital of various types to hold, when to acquire the capital, how durable the
capital and how long to hold it. Boadway and Shah (1992) use the METR concept to measure
investment incentives in developing countries. They find that investment incentive typically operate
through the tax system either directly or indirectly. Often tax incentives are administered to
encourage the economy, but the only way of measuring their effectiveness is via METR calculation.
Incentives involve interfering with capital markets to encourage particular types of investment,
which implies inefficiency in the way capital markets allocate investment. (Boadway and Shah
1992). It is important to measure effectiveness of investments to avoid market failure. There are
several sources of market failure:
•
•
•
•
•
•
•
•
•
Capital income taxes: taxes can inevitably impose a distortion on investment
Dynamic inefficiency: exists if it is possible to make someone better off without making
someone worse off.
Externalities or public goods: if each saver receives utility for saving for their children,
saving will yield external benefits that are not taken into account by savers. This will lead to
less saving, or a high market discount rate. Government intervention should promote
increased saving.
Externalities of growth: these involve externalities on the supply side, for example to firms
other than those undertaking the investment. Investments, such as technological
improvements can generate external benefits to other firms.
Incomplete or imperfect capital markets: markets may not be perfectly functioning due to
liquidity constraints, or incomplete risk markets, influencing saving and investment
behavior of persons.
Informational asymmetries: the profitability of investment or some firm is better known by
certain people than by others. For example, managers know more than shareholders,
causing differences in behavior than if everyone was perfectly informed. The two types of
asymmetries are adverse selection and moral hazard.
International tax competition,
Distortions in other markets, such as labour or foreign exchange markets.
Inconsistency of government policy, especially over time, and trying to tax old capital
In their paper, Boadway et al (1992) look at investment incentives as vehicles to stimulate growth
and investment in a country. Investment incentives can play a major role as policy instruments. If
the corporate tax is used as a withholding device, it will impose a tax distortion on domestic
investment. Investment incentives that apply at source to domestically owned capital will offset the
corporate tax distortion. The investment incentive should take the form of reduced tax rates
(Boadway and Shah 1992). Another consideration is for infant industry start-up, in which case
incentives may be superior to tariff protection. Many of these firms are not in a good position to pay
tax and may be involved in risky projects. They may be cash strapped because of asymmetric
8
information, and they cannot distinguish themselves as good or bad risks to lenders. Temporary
investment tax credits may be a good option.
One of the major reasons for encouraging investment is that investment generates benefits for the
economy far over privately captured benefits. The similarities are much like economy-wide network
improvements for nationwide freight movement (ICF Consulting, HLB Decision Economics et al.
2001; Mallett and Sedor 2004). In that case, there is a case for encouraging investment to be
higher than it ordinarily would be. Smaller, growing firms who are short of internal finance and
cannot self insure are sensible targets for investment incentives as well, since the corporate tax
system may discriminate against them. Temporary tax incentives may be used by countries as
signals of their quality as places for foreign investment. Tax incentives can also overcome time
inconsistency problems, due to the unreliability of governments to commit to future tax policies.
Using METR models are one of the common ways 5 to evaluate investment incentives. METR
methodology is straightforward to use to determine the size of the incentives to encourage
investment. One can calculate the METR in the presence and absence of incentives and see
explicitly how much the incentive changes the marginal tax rate on investment decisions of various
sorts (Chen 2000).
Taxes can affect investment in other ways than simply the size of demand for capital, they can
affect the path of accumulation of capital as well as durability of capital. Permanent incentives will
affect the long run demand for capital and may affect the chosen durability of capital. The subsidy
to replacement capital means firms will have the incentive to choose less durable, fasterdepreciating capital.
In open economies, capital may move across borders in response to tax measures affecting
investment. Tax measures such as investment incentives would affect investment side of the
market but not the saving side. The ability of capital to flow in this fashion presents a number of
other issues to be considered: incentives which reduce tax liabilities of foreign firms may have
limited effect on incentive of these firms to invest, and may serve largely to transfer funds to home
treasuries (Chen 2000).
Applications to different sectors
Boadway et al. (1992) does an empirical investigation of METRs facing a firm extracting a
depletable asset. They also characterize the significant difference between the average and
marginal tax rate. In mining for example (mining resources are depletable assets) one would
expect the marginal to be lower than average due to the presence of economic rents, since an
average tax rate includes the taxes generate on a marginal capital investment.
This is important in industries with large rents (Boadway, Bruce et al. 1987). A tax on rents is
neutral, since the values of economic costs of production are deducted from the tax base. Here the
5 There are five broad models, though not exhaustive, identified to model investment and incentives to
invest. See Appendix A.
9
tax on marginal investment is zero, but the average tax rate is positive. In the mining sector,
average tax rates were used as indicators on effect of the tax system on the incentives to invest,
but because the sector shows large positive average tax rates, the rates could be misleading in
defining incentive to invest. If marginal rates are negative, this suggests that the tax system is an
inefficient collector of rents.
Resource and manufacturing firms are different. Resource firms hold and exploit depletable assets,
but in manufacturing, assets are all reproducible. Tax laws also differ for the two industries, mainly,
costs of exploration and development are subject to write off. They also pay more to provinces in
terms of profit taxes, royalties, and the like. In this paper, they find the federal and provincial 6
governments tax policies on mining distort decision-making and do a poor job of collecting rents.
The METR is much lower for mining than other industries, at 16.6 per cent in Ontario and 55.6 per
cent in Quebec. The taxes tend to distort the mining sector significantly. They encourage
exploration and development but discourage extraction and other investment.
If a tax were imposed on pure profits or rents, the METR would be zero rather than negative. The
federal corporate income tax subsidizes marginal investment in the sense that companies can write
off generous deductions against other sources of incomes. The size of the subsidy depends on the
manner in which taxable losses can be used. The substantial range in METR on mining assets
suggests that the tax policy can be improved to remove distortionary effects. A suggestion has
been to use cash flow tax, which would allow expensing of investments and non-deductibility of
interest costs. Such a tax would remove the distortion it creates to production and instead tax
economic rents.
Non tax factors naturally affect the METR when combined with tax effects. Non tax factors may
cause allocative distortions that were not intended by policy makers (Chen 2000). This may be
happening with security requirements across the border. Non tax factors that can cause
unintended allocative distortions are: inflation, the debt to assets ratio, economic depreciation and
capital structure. Inflation affects METR through cost deductions, mainly through three channels.
First, since the tax of borrowing is deductible in income tax, the higher the inflation the lower the
post tax real financing cost and hence the lower the METR. Second, a higher inflation rate implies
a higher nominal discount rate for future tax allowances, and implies a lower present value for
future tax depreciation allowances. This raises METR on depreciable assets. The third stems from
the inventory accounting method. In Canada, the first-in-first-out (FIFO) inventory accounting
method is used for tax purposes. Inflation may cause the reported income to be higher because
current prices for replacement cost will be higher than historical prices. 7 Inflation has opposing
effects on METR depending on the assets, so the impact overall on METR will depend on the
capital structure in a given industry (Chen 2000).
A higher debt to asset ratio may reduce METR, because the greater the ratio, the greater the
potential benefit of tax deductibility for interest expenses. Economic depreciation rate and the tax
depreciation allowance also play a role in METR calculation. A higher tax deprecation allowance
generates more benefits through tax deferral. Therefore, the METR on capital will be lower where
tax depreciation allowances are more generous.
6
7
mainly Ontario and Quebec, where most mining activities occurred in that period
Inventory is written off at historical prices but replaced at higher current prices
10
It is fairly intuitive that capital structure will effect METR, since a capital investment usually involves
both depreciable and non-depreciable assets, such as structures, machinery, inventory and land.
An industry with a higher capital share in higher taxed assets is more exposed to higher METR in
general (Chen 2000).
The Canadian tax system
METRs allow one to compare tax rates across different assets, business sectors and tax regimes.
Variations indicate distortions in one tax regime being more advantageous than another. For
instance, the Canadian tax system taxes inventory the highest, and machinery the least. If tax rates
are the same across different assets and sectors, an allowance scheme that favors certain asset
types can cause cross-sector or cross-asset distortion. This information is revealed by METR
analysis.
The METR is important because it guides firm in capital allocation and investment decisions. The
government has recognized the extent that taxes play in attracting or repelling foreign capital. This
has brought to attention which measure of tax rate is important in economic decision-making. The
METR, and not the average tax rate (AETR) matters in capital allocation. The METR is the tax rate
that bears an incremental dollar of income from investment (Chen 2000).
Standard analysis finds that the labour intensive firm is taxed at a higher rate than the capital
intensive firm and is disadvantaged by the tax system as a result. But in their analysis McKenzie et
al (1997) propose a new method for aggregating taxes that focuses on production rather than on
investment decisions, based on the theory that firms produce output until marginal revenue equals
marginal cost. Taxes on outputs and inputs affect production decisions by increasing marginal cost
of production, hence causing the supply curve to shift.
McKenzie et al find that the labour intensive firm is in fact favored by the tax system because taxes
lead to a lower percentage increase in costs of production. This is because the labour intensive
firm relies more heavily on a factor of production that is taxed at a lower rate. Their measure of the
METR on MC of production depends on the factor of production used by firms, types of taxes
imposed and the incidence of these taxes. They provide a summary statistic of how taxes impose
upon the cost of doing business. By computing tax rates on marginal production costs, speculation
can be drawn on how the tax system may influence decisions of where a firm produces, but how
the tax system as a whole, and not just the tax on capital may encourage or discourage certain
types of production compared to others in a particular region.
Their approach focuses on the linkages between input and output markets. The output market is
connected to the input market via the aggregate supply curve, that is, the sum of marginal cost
curves for the individual suppliers. The MC of producing an additional unit of output reflects the
user cost of various inputs, which affects supply and demand conditions in the input markets. The
net impact of imposing a tax regime is to increase marginal costs, but it’s possible that MC may
decline if the METR on some of the inputs is negative or sufficiently negative (McKenzie, Mintz et
al. 1997).
11
McKenzie et al (1997) aggregate effective tax rates in the presence of multiple inputs into a simple
summary statistic. They measure METR on MC, an increase in MC of production due to imposition
of various taxes on a firm’s inputs and outputs. They focus on the production decision of firms
rather than the investment decision, and take account of firm technology and factor intensities.
They suggest that the effective tax rate on labour is substantially lower than the tax on capital
inputs, in all sectors and all provinces. Sectors, which are relatively labour intensive, with a large
portion of labour expenses, are likely to face lower effective tax rates on their marginal costs. This
will tend to favor service sectors.
The tax rates on inventory tend to be very high suggesting that sectors with a high inventory share
such as agriculture, forestry and fishing and construction, will face higher tax rates on their costs.
In a cross-Canada comparison, they found that the manufacturing sector faces a lower tax rate on
costs than other industries. The effective tax rate is quite low due to the lower rate imposed on
manufacturing in general by both the federal and most provincial governments. The service sector
in every province faces lower tax on production costs by about 10 percentage points. This occurs
despite the taxes on all inputs are much higher in services. Because the service sector uses more
of the lower taxed input, the METR on costs is much lower even though it faces much higher costs
on each of it’s inputs (McKenzie, Mintz et al. 1997).
The transportation industry faces higher effective tax rates than utilities, yet in every province the
effective tax rate on costs is higher in utilities by about 8 percentage points. This is because the
labour’s share of costs in transportation is much higher than other sectors. The share of taxes
collected from structures is much lower in transportation, therefore the high effective tax rate does
not have a significant impact on marginal cost.
Corporate tax is largely a method for the government to share the risk of the corporation to smooth
out stream of profits and reduce variance, hence reduce risk of the return to equity. Therefore
METR may not be a distorting tax. However this is not to say that profits and losses are treated
similarly by the tax system; there is far from perfect loss offsetting, which may increase the
distortions (Boadway, Bruce et al. 1984).
Distortions
The analysis of METRs in Canada showed three types of distortions caused by the tax system:
across firm sizes, production inputs and across industries. They find that small firms are treated
more favorably than large firms, METR on tangible capital are appreciably higher than those on
intangible capital and labour, and service industries are treated less favorably than non-services,
such as agriculture, forestry, non-renewable resources and construction (Boadway, Bruce et al.
1984).
Boadway et al. (1984) shows the distortion created by the Canadian tax system on capital markets
in the period 1963-78. Corporate tax causes the gross marginal rate of return on capital to differ
from the rate of return on funds that the firm must pay to the market. Tax can induce either a
positive or negative distortion, it could cause the return to exceed or fall short of the market return
depending upon the generosity of deductions or tax credits. If the present value of capital cost
allowances, deductions (interest) and tax credits is less than the initial cost of the investment than
12
the distortion will be positive and investment will be discouraged. If it’s present value exceeds the
initial cost, the tax subsidizes investment at the margin (Boadway, Bruce et al. 1984).
The METR on capital means the income generated from that type of capital. Of the four types of
capital - inventory, land, buildings and machinery – inventory is taxed most highly and machinery
the least. This is because Canada’s income tax system encourages capital investment in
machinery provides a generous capital cost allowance for those assets. The much higher METR on
inventory is mainly as a result of the tax reporting requirement that the first-in-first-out accounting
method. This may cause taxable income to be inflated when prices are rising. If the last in last out
method were allowed, there would be no inflated income for tax related to inventory, so the METR
on inventory would be as low as the METR for land (Chen 2000).
The METR on buildings is higher than on machinery because the tax depreciation allowance for
buildings, relative to their economic depreciation rate, is much less. The depreciation rate on
buildings is closer to the actual economic depreciation rate while that for machinery exceeds
economic depreciation.
METRs vary across sectors due to different capital structures, rates and capital cost allowances.
For example, the combined statutory rate for manufacturing than for other non-resource sectors is
about 6 percent lower. Thus the manufacturing industry is the lowest taxed non-resource industry
in Canada. However, METR is not much lower than it is for other sectors, which is surprising
considering the huge gap in statutory tax rates, but this is because manufacturing places capital
heavily on inventory, and inventory is the highest taxed class of assets. The METR is highest for
construction among all industries – it is the highest taxed on it’s assets and it holds a significant
share of capital in inventory.
Chen (2000) also does a cross border comparison of METRs, and asks the question of if given a
location option, in which NAFTA country should a Canadian manufacturer expand it’s business
line. A cross border comparison of METRs shows that that it’s lowest in manufacturing in US, and
lower yet in Mexico. If business taxes were the only distinguishing features of projects, the
manufacturer would be better off investing in U.S. or Mexico production facilities. In addition, the
gap between METR between manufacturing and services is much bigger in Canada than in the
other two countries, indicating Canada displays a more severe inter-sectoral distortion.
Inflation
Boadway et al. (1984) analyze the impact of corporate and personal income taxes and inflation on
the cost of investing in depreciable and inventory capital. Inflation affects the value of the firms’
write-offs from investments and thus affects the magnitude of the distortion. The distortion is not
obvious: it could be positive or negative. Inflation could be stimulative at margin when combined
with corporate tax. Their analysis disintegrates investments by type: depreciable versus nondepreciable capital. In measuring METR in Canada, they distinguished four different types of
capital: land, buildings, machinery and inventories.
The presence of inflation appears to lower the net return to savings. Taxation of inflationary capital
income more than offsets the tendency for market real rates of return to rise with inflation. For nondepreciable capital, the rate of return falls considerably with inflation because of writing off of
13
nominal rather than real interest (Boadway, Bruce et al. 1984). But inventories appear to be very
negatively affected by inflation. In addition, corporate taxing appears to tax inventories heavily.
Inflation does not seem to significantly effect incentives to invest or the METR, except in the case
of inventories. Also with the exception of holding inventories, the corporate tax structure itself does
not affect the decision to invest. Since firms have been holding additional inventories since 9/11
(“hoarding”) this could also effect decisions and profitability even further.
Most corporate taxes have little provision for inflation. Deductions tend to be on nominal interest
rates and depreciation is calculated on historical rather than replacement terms – so inflation
affects the real value of the tax base. The effect is ambiguous; inflation could increase or decrease
the METR. Lack of replacement cost depreciation will reduce the size of the write off, whereby
METR would increase, but ability to deduce nominal interest means at times of high inflation firms
can write off a part of principal on their debt: and this tends to reduce the METR. The net effect will
depend on the relative magnitude of the two forces (Chen 2000).
Application to ITS and Security
The analysis of METRs on the Canadian tax system reveals that significant distortions can be
created by taxing inputs. The distortions would not be recognized if not for the METR methodology.
In fact, the source of burden would be very difficult to identify.
Since increased border regulations, especially after 9/11 are designed to promote national security
interests, sectors that rely on crossing the border as part of their business model decipher the
increased security as an additional tax on their business. The result is a possible disadvantage to
firms that required either sourcing from cross border, access to customers cross border, or firms
where their business is inherent to crossing the border, for example, transportation companies
such as trucking firms, versus firms that operate exclusively in the domestic market. There is heavy
literature dedicated to the relative disadvantage to industries that rely on crossing the border, due
to increased security regulations, and most of the burden bore by the trucking industry (DAMF
Consultants Inc. and LP Tardiff & Associates Inc. 2005). It is important to note however that there
have not been very many empirical analysis of the allegations, much of the support for the
argument is garnered by surveys on the trucking industry and intense speculation.
A parallel can be drawn from environmental taxes as exemplified by Poterba and Rotemberg
(1995). They analyze the dilemma posed with how to charge and environmental exise tax on goods
when either an intermediate or final imported good is subject to some sort of environmental tax
(due to it’s polluting qualities) when it crosses the border. Problems with environmental exise taxes
are particularly complex because many of these taxes are levied on intermediate inputs, such as
fossil fuels rather than on final goods.
If the intermediate good produces pollution only where it is used, than the country that imposes the
tax on domestic use of intermediate goods will experience a reduction in pollution as use of the
intermediate good moves to the other country (Poterba and Rotemberg 1995). But if use of this
good generates pollution that flows across the border and consequently affects residents of the
14
taxing nation, a shift in production may not be favorable. This is a situation of misaligned incentives
and externalities.
In their paper, Poterba and Rotemberg (1995) analyze the design of environmental taxes on
imported final goods when policy makers seek to affect equal changes in the marginal costs of
domestic and foreign producers. Identifying the taxes is important to ensure that they are being
directed at the source of pollution – it is important to ensure that preventing exise taxes imposed on
foreign producers so that environmental protection does not become an excuse for protectionism of
national sectors. When it is possible to measure the amount of taxed intermediate good used to
produce an imported final good, an import tax equal to the tax on the intermediate good times the
amount of the intermediate good used in domestic production of the final good will raise the
marginal cost of domestic and foreign producers by the same amount. When final goods are
produced jointly, there is a negative result because the amount of intermediate good is not well
defined, and it is not possible to prescribe the appropriate border taxes. These taxes to regulate
and control environmental protection, can be security protection both try to prevent the seepage of
risk, whether environmental pollution or terrorist threats, through the border.
To raise the marginal cost of foreign and domestic producers by the same amount, the tax on
imported good final goods must be based on the importance of the intermediate good in domestic
production. Regulations that allow importers to pay taxes equal to the actual amount of
intermediate good used in production, may not raise marginal cost of foreign and domestic
producers by the same amount.
Countries attempt to control polluters but taxing them. The polluter, or the person responsible for
the pollution should be the one penalized for producing the pollution, to create accountability and
create proper incentives to abate polluting. The problem arises when a good is produced using
intermediate goods that come from abroad. How should intermediate goods that will be used as
part of a final product, which emit pollution be structured? Where should the good be taxed? In
addition, there is also a problem with externalities. This is a similar situation that is associated with
national and economic security. A security threat may exist in one country and relies on
permeability to advance it to the country it intends to attack. Tightening border vulnerabilities has
become a policy objective in the U.S. since 9/11. Border security policies have inadvertently led to
increased congestion at the border, causing supply chain disruptions and decreased reliability.
Increased information requirements 8 have stressed the industry and acted like a ‘tax,’ which offer
both benefits and costs, at the margin. Hence the marginal effectiveness of such policies must be
addressed. The ‘taxes’ can produce externalities, both positive and negative for the economy and
for the company that is being taxed.
The role of border security can be broken down to benefits and costs as follows:
Benefits:
• Increased security (for the company)
• Increased security (economy-wide improvements)
• Scheduling and supply chain improvements in the long run (company)
8
in programs such as C-TPAT, designed to increase supply chain visibility
15
•
Network improvements for the economy
Costs:
• Scheduling difficulties arising from congestion at border, depending on high or low
variance. If variance is low, may allow an adjustment to equilibrium; if variance is high this
is a more serious issue because the industry is constantly subject to low reliability and
unpredictable, irregular disruption
• The objectives can produce economy wide improvements, so placing responsibility on the
company alone requires the company to bear much of the cost while the economy
receives positive externalities
• The company can redistribute costs to customers in the form of higher prices
We wish to suggest the METR methodology should be applied to border crossings because
increased congestion, commercial vehicle volume, 9 and service unreliability is a major problem
plaguing the trucking industry (Taylor, Robideaux et al. 2004). A METR approach will reveal the
marginal costs that affect the firms. Basically, the following events are occurring:
•
•
•
•
•
The border presents an interruption in the supply chain or queuing point / verification point
Increased demand at border is causing congestion
Congestion is costing the industry involved in cross border activities, mainly for commercial
vehicles (CVO)
Increased costs for CVO have upstream and downstream effects
A deviation from variance in delay time is rendering the industry unable to return to
equilibrium
Data collected over several days at regular hours (total data points is 800 entries) 10 displays the
statistical information collected from all the border crossings. The results show a very high
standard deviation. Though this data set is limited, it, combined with literature dedicated to the
subject, reveals that the border is in fact a contributor to scheduling problems and inefficiencies
and preventing the industry to settle into equilibrium 11
Utilizing the METR concept
METR are a concept of an input based cost that can measure output effects. METR taxes are
parallel to concepts such as security and border control. Security and border control are not
costless, neither for the public sector to administer nor for the private sector to comply with. They
involve increased time and effort to induce compliance, and increased requirements for shippers
and carriers cost them time and resources, including opportunity costs. The programs have costs
and benefits. One of the major components of costs is waiting time at the border. When delays are
high, a commercial vehicle operator (CVO) will face higher operating costs, and if in addition,
variance in delay is high, will not be able to reach equilibrium in scheduling.
Though at the Pacific Crossing in Blaine, Washington the volumes have slightly decreased since 2001
See Appendix B
11 This needs to be investigated in greater detail. There is a considerable lack of empirical work dedicated to
border crossing issues in the literature, though there is ample documentation of the problems qualitatively.
9
10
16
These ‘taxes’ are inputs and are also costs. ITS may be able to contribute to this methodology,
since we are interested in increasing reliability of variance. Currently, there is no sense of
optimization with current strategies to manage the border, instead, there is a concern over how
demand should be met given resources, and how to best allocate those resources to match the
demand, and not how to manage the demand itself. Demand is taken as exogenous in the models,
and we argue that it does not need to be so. Demand can be managed. For example, to improve
efficiency, a strategy may induce motorists to make use of border resources at non-peak times by
relaying information on border congestion.
There are consequences of increasing input taxes. There is a need to measure the output effects
of these measures. The concept of increased security and border control is essentially an input tax;
the costs and benefits should be measured. Can ITS contribute to the methodology of increased
security? Security is difficult to measure, and full security is essentially impossible. 12 We believe
ITS can serve to improve the information so route decisions can be changed, plans can be altered
due to access to timely and reliable information.
The effect of security and border regulations on commerce is a natural extension of METR
because policies can act as an ambiguous tax on the sector. Having proper policies in place to
protect the country, and the economy by ‘taxing’ entities that engage in cross border activities.
Trading gives access to a larger market, therefore generates benefits for the economy and the
company, but also generates costs because of the country’s concern with border permeability
increasing risk of terrorist threats. Measuring the extent to which the business tax regime impedes
on marginal costs helps us to think about the implications of taxation for competitiveness.
Governments identify the preservation of competitiveness of domestic producers with foreign
producers as the relative marginal costs they each have to pay and as these taxes impinge on
competitiveness (Poterba and Rotemberg 1995).
Increasing marginal costs may reduce production, and hence the level of business activity in an
economy. In a competitive economy, firms produce goods until marginal revenues equal marginal
costs. The extent the government policies can influence the marginal costs of production they can
influence the level of goods available in an economy. A regime that can generate tax-induced
differences across producers within a market, jurisdictions, and industries is of particular concern.
At border crossings, subject to strict security regulation has created a tax on the industry. In the
case of border crossings, we may see disparities between different trucking companies based on
firm size, or further upstream or downstream, such as a automotive manufacturer that sources
parts from both countries (Ontario Chamber of Commerce Borders and Trade Development
Committee 2004).
An important issue is the extent to which taxes levied on firm inputs are reflected in their user costs
(therefore marginal production costs) – in CVO, this translates to if the increased charges at the
border are passed on to their customer via higher shipping prices. This is important to distinguish
because taxes levied on inputs will not affect user costs at all and will not feed to marginal costs.
For more information, see the exploratory working paper by Gillen and Gados (2005), titled: The
Economics of Security.
12
17
The extent to which taxes will be reflected in user cost of inputs depends on the supply and
demand conditions in the input markets.
In determining METR for border and security costs including congestion, we must determine the
fraction of this ‘tax’ on inputs, such as:
•
•
•
Increased drivers wages
Scheduling effects
Upstream and downstream scheduling inconsistencies.
As discovered by McKenzie et al (1997) the labour’s share of costs in transportation is much higher
than other sectors. The share of taxes collected from structures is much lower in transportation,
therefore the high effective tax rate on structures does not have a significant impact on marginal
cost. However we may think of the input costs for a transportation company:
• Input tax: depends on type of input – capital or labour input? Driver, labour, inventories, truck
and assets, trailers, onboard assets, depreciation, dispatch centre.
• Labour in transportation sector – increase value of trucker’s time: value of time, opportunity
cost of transportation workers
There is also an issue of distortion with inventory. There is an issue created with a higher METR on
inventory holdings. This may disadvantage businesses that hold a high level of inventory. This
problem is even more superlative because border security protocols have caused inventory
hoarding. There is evidence that inventory holdings have increased even more since 9/11. More
inventory has been added to the supply chain as unreliability with border control and security has
become pervasive. Inventory hoarding means that more product is being held and the firm is
consequently being taxed more, in addition to the border “tax” we characterize associated with
shipping cross border, exacerbating the problem.
The demand for border appears to behave inelastically because though the literature documents
very problematic conditions at the border, the demand has not fallen, and businesses do not
appear to have changed their operations.
There is evidence that an ITS investment is irreversible. Unlike a building, it is a highly specialized
tool that may involve a high amount of risk. For example, there is no sense in investing money in
in-truck ITS applications if the government does not make investments outside the truck, meaning,
to foster the ITS investment. For example, a truck investing in weigh-in-motion RFID needs an
reciprocal sensor at the weigh-in-motion stations to bypass the stations. Or, a free and secure
trade (FAST) RFID card needs a reader at the border.
There is an urgent need to measure the effectiveness of border control programs at the margin,
and to promote investments in the industry of suitable solutions, such as ITS that involve coupling
the of private and public sector.
18
Appendices
Appendix A
Five broad models identified by Chen (2000) to model investment and incentives, among one of
which is METR.
1. The flexible capital stock adjustment model: tax incentives affect investment through
changes in desired capital stock by reducing relative price of capital.
2. The Q theory: firm will invest as long as a dollar spent buying capital raises the market
value of the firm by over a dollar.
3. General forward looking models
4. Effective tax rate / return over cost models, and;
5. METR models (Chen 2000).
Appendix B
Border Wait Times:
Collected in November and October, 2006; Number of observations is 800.
Delay time in minutes. Source data: http://apps.cbp.gov/bwt/
Mean: 8.202
Standard Deviation: 12.651
Variance: 160.06
Average Daytime Wait Times for Commercial Vehicles at Selected Border Gateways: 2003 and
2004, in Minutes
2003
2004
Port Huron-Bluewater Bridge, MI
26.8
25.2
Blaine-Pacific Highway, WA
18.7
15.0
14.8
Detroit-Ambassador Bridge, MI
16.1
Buffalo/Niagara Falls-Peace Bridge, NY
10.0
12.5
Champlain, NY
3.7
11.6
7.6
Sumas, WA
11.0
Buffalo/Niagara Falls-Lewiston Bridge, NY
12.1
7.2
Sweetgrass, MT
4.8
6.8
5.6
Derby Line, VT
6.1
Pembina, ND
5.6
5.4
Houlton, ME
3.3
5.3
Sault Ste. Marie, MI
6.7
5.1
4.6
Highgate Springs, VT
4.5
Detroit-Windsor Tunnel, MI
3.6
4.0
Calais-Ferry Point, ME
14.7
3.9
Jackman, ME
1.3
1.3
Source: U.S. Customs Border Protection website: http://www.cbp.gov/ Accessed: August, 2006.
19
References
Boadway, R., N. Bruce, et al. (1987). "Marginal Effective Tax Rates for Capital in the Canadian
Mining Industry." The Canadian Journal of Economics / Revue canadienne d'Economique 20(No.
1): (Feb 1987), pp. 1-16.
Boadway, R., N. Bruce, et al. (1984). "Taxation, Inflation and the Effective Marginal Tax Rate on
Capital in Canada." The Canadian Journal of Economics / Revue canadienne d'Economique
17(No. 1): (Feb 1984), pp. 62-79.
Boadway, R. and A. Shah (1992). "How Tax Incentives Affect Decisions to Invest in Developing
Countries." Policy Research Working Paper Series 1011, The World Bank.
Bulow, J. I. and L. H. Summers (1984). "The Taxation of Risky Assets." The Journal of Political
Economy 92(No. 1): 20-39 (Feb., 1984).
Chen, D. (2000). "The Marginal Effective Tax Rate: The Only Rate that Matters in Capital
Allocation." Backgrounder: C.D. Howe Institute.
DAMF Consultants Inc. and LP Tardiff & Associates Inc. (2005). "The Cumulative Impact of US
Import Compliance Programs at the Canada/US Land Border on the Canadian Trucking Industry:
Final Report." Transport Canada: TP14402E.
Donath, M. (2005). "Homeland Security and the Trucking Industry Final Report." International Truck
& Engine Corporation, ITS Institute, Center for Transportation Studies, University of Minnesota.
Fullerton, D. (1995). "Marginal effective tax rate." University of Texas.
Gillen, D. and A. Lall (2003). "International transmission of shocks in the airline industry." Journal of
Air Transport Management 9(2003): pp.37-49.
ICF Consulting, HLB Decision Economics, et al. (2001). "Freight Benefit/Cost Study Capturing the
Full benefits of Freight Transportation Improvements: A Non-Technical Review of Linkages and the
Benefit-Cost Analysis Framework (Final Report)."
Mallett, W. and J. Sedor (2004). "Freight Transportation Improvements and the Economy."
Prepared for the Federal Highway Administration.
McKenzie, K. J. (1994). "The Implications of Risk and Irreversibility for the Measurement of
Marginal Effective Tax Rates on Capital." The Canadian Journal of Economics / Revue canadienne
d'Economique 27(No. 3): (Aug 1994), pp. 604-619.
McKenzie, K. J., M. Mansour, et al. (1998). "The Calculation of Marginal Effective Tax Rates."
Working Paper 97-15 Prepared for the Technical committee on Business Taxation.
20
McKenzie, K. J., J. Mintz, et al. (1997). "Measuring Effective Tax Rates in the Presence of Multiple
Inputs: A Production Based Approach." International Tax and Public Finance 4: pp. 337-359
(1997).
Ontario Chamber of Commerce Borders and Trade Development Committee (2004). "Cost of
Border Delays to Ontario."
Poterba, J. M. and J. J. Rotemberg (1995). "Environmental Taxes on Intermediate and Final Goods
When Both Can Be Imported." International Tax and Public Finance 2: pp. 221-228 (1995).
Taylor, J. C., D. R. Robideaux, et al. (2004). "U.S.-Canada Transportation and Logistics: Border
Impacts and Costs, Causes, and Possible Solutions." Transportation Journal 43(4): ABI Inform
Global. pg 5.
21