Classical corporation tax system: the classical model of pure "double" taxation of company`s income
Classical corporation tax system: the classical model of pure "double" taxation of company`s income

Summary/Abstract: 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. Previously, we’ve managed to explain the distortive effects that arise from the isolated implementation of corporate taxes, a condition which assumes total abstraction of the personal taxes. In the article presented below, we introduce the personal taxes in our analysis as well, with intention to explore the investment decision from the shareholder’s point of view. With other words the intention is to analyze the effects from the integrated implementation of both, the corporate and the personal taxes, a phenomenon commonly referred as “double taxation”. For that purpose, we explore the properties of the Classical Corporation Tax System, which is widely considered as a classical example model of the pure “double” taxation of corporate income. The basic methodology utilized for the research is the EMTR (the effective marginal tax rate) and its analytical frame, which is additionally modified and extended to express the conditions that define the Classical Corporation Tax System. Hopefully, the investigation of the theorethical properties of this traditional approach in corporate taxation, will prove serious limitations and distortions of the reffered model, which are mainly concentrated in the field of corporate finance and the allocation criteria.

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