Marginal Effective Tax Rate

Research Report

Marginal Effective Tax Rate

From The Encyclopedia of Taxation and Tax Policy
September 30, 1999


The marginal effective tax rate, designed to measure incentives for investment, is a calculation that takes into account effects of measurement and timing of income in determining the impact of a tax applied to an additional dollar of capital income. The marginal effective tax rate on capital income is the expected pretax rate of return minus the expected after-tax rate of return on a new marginal investment, divided by the pretax rate of return.

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