Possible implications of corporate income taxes being levied on accounting profits include
1) underinvestment in new machinery and equipment;
2) a lower rate of adoption of the latest technologies;
3) faster productivity growth.

Question

Quizplus · Accepted Answer

When corporate income taxes are levied on accounting profits, companies may have less cash available for investment in new machinery and equipment (underinvestment), as well as for adopting the latest technologies (lower technology adoption rate) that can improve productivity. This is because tax deductions may not provide relief for companies that invest in capital goods, such as machinery, compared to those that simply have lower profits. As a result, companies may opt to pay taxes instead of making investments in order to increase profits that are subject to taxation, which can negatively affect investment and technology adoption but may not always lead to faster productivity growth.

Possible Implications of Corporate Income Taxes Being Levied on Accounting