The impact of full and incremental ACE systems on the cost of capital

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Kirn, T. (2015). The impact of full and incremental ACE systems on the cost of capital. Paper presented at the 71st Annual Congress of the International Institute of Public Finance (IIPF 2015), Trinity College, Dublin, Ireland.

Publication type

Paper in Conference Proceedings


Several countries have implemented full or incremental ACE systems. This raises the question, how those systems impact the cost of capital and hence the optimal capital structure. This paper extends the results of Modigliani and Miller (1958) to determine the cost of capital with an ACE in the case of uncertainty. The comparison between full and incremental ACE systems reveals that the cost of debt in the case of a full ACE is more responsive to a change in market debt-equity ratio. The marginal analysis elucidates that there is no there is no trade-off between the tax rate and the eligible share of equity capital in incremental ACE systems. This finding is relevant for the tax policy discussion in many countries that have introduced or consider introducing a full or an incremental ACE.


Microsimulation Studies on Business and Income Taxation
Auftragsforschung, since October 2009

The aim of this research project is to support the current discussion about the revenue and distributional effects of the Liechtenstein tax law by quantitative results. This is accomplished by the ... more ...

Microsimulation und Model Development
Auftragsforschung, since June 2009

Content of this project is the ongoing development of the Liechtenstein micro-simulation models. There are two basic models: microLIE: PIT is the model of the personal income tax system and microLIE: ... more ...


Organizational Units

  • Chair for Tax Management and the Laws of Liechtenstein and International Taxation
  • Center for Economics

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