Progressive Taxation, Tax Exemption, and Irreversible Investment under Uncertainty
AbstractWe analyze the impact of progressive taxation on irreversible investment under uncertainty. We show that if tax exemption is lower than sunk cost, higher tax rate will decelerate optimal investment by increasing the optimal investment threshold, while if tax exemption exceeds sunk cost, three different regimes arise. For "small" volatilities the optimal investment threshold is a positive function of volatility, but independent of tax rate. For "medium" volatilities it is independent of both tax rate and volatility. Finally, for "high" volatilities the optimal investment threshold depends positively on volatility, but negatively on tax rate so that we have "tax paradox". Copyright 2008 Blackwell Publishing, Inc..
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Bibliographic InfoArticle provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.
Volume (Year): 10 (2008)
Issue (Month): 1 (02)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1097-3923
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- Wong, Kit Pong, 2011. "Progressive taxation and the intensity and timing of investment," Economic Modelling, Elsevier, vol. 28(1-2), pages 100-108, January.
- Wong, Kit Pong, 2009. "Progressive taxation, tax exemption, and corporate liquidation policy," Economic Modelling, Elsevier, vol. 26(2), pages 295-299, March.
- Niemann, Rainer & Sureth, Caren, 2009. "Investment effects of capital gains taxation under simultaneous investment and abandonment flexibility," arqus Discussion Papers in Quantitative Tax Research 77, arqus - Arbeitskreis Quantitative Steuerlehre.
- Mehrmann, Annika & Schneider, Georg & Sureth, Caren, 2012. "Asymmetric taxation of profits and losses and its influence on investment timing: Paradoxical effects of tax increases," arqus Discussion Papers in Quantitative Tax Research 134, arqus - Arbeitskreis Quantitative Steuerlehre.
- Meißner, Fabian & Schneider, Georg & Sureth, Caren, 2013. "The impact of corporate taxes and flexibility on entrepreneurial decisions with moral hazard and simultaneous firm and personal level taxation," arqus Discussion Papers in Quantitative Tax Research 141, arqus - Arbeitskreis Quantitative Steuerlehre.
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