Summary, Description, and Extensions of the Capital Income Effective Tax Rate Literature

In this paper we summarize the capital income effective tax rate literature. An effective tax rate (ETR) can be defined as a measure intended to estimate the real tax burden on an economic activity. Departing from the cost of capital formulation, we describe the development of forward- and backward-looking marginal and average tax rates. We shed some light on the pros and cons of each approach, and we propose some simple extensions: a marginal effective tax with technological progress, an average effective tax with uncertainty and the entrance of rival firms, and an average effective tax rate on the cost of production