Abstract
This paper discusses tax implications of fair value accounting. We first provide an overview over existing tax systems in Europe and the United States and the use of fair value elements for tax purposes. We also discuss potential costs and benefits of implementing fair value taxation. Benefits of using fair value accounting for tax purposes, for example, comprise fewer distortions of investment decisions. However, there are also potential downsides of fair value based taxation. For example, tax payments of firms could become more counter-cyclical and firms might have to pay taxes on unrealized gains. Taken together, our paper provides an overview of costs and benefits of fair value taxation as well as potential avenues for future research.
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