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Irreversible Capital Accumulation and Nonlinear Tax Policy: A Note

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  • Luis H. R. Alvarez
  • Erkki Koskela

Abstract

We analyze the influence of tax progression on optimal investment policy and its value. We show that three possible optimal regimes arise, depending on thenature of the tax policy. If the exogenously given progression threshold lies between the optimal capital stocks in the case of higher and lower marginal profit taxes, then the optimal investment policy is independent of profit tax rates. But outside this corner solution, the optimal investment policy is conventional.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 63 (2007)
Issue (Month): 1 (March)
Pages: 46-53

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200703)63:1_46:icaant_2.0.tx_2-3

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Keywords: optimal investment; nonlinear tax policy;

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