Wide vs. Narrow Tax Bases under Optimal Investment Timing
AbstractThis article compares an ACE system with a CBIT system in an open economy. Using a real-option approach we show that, if a firm can decide when to invest, a tradeoff is found. According to traditional wisdom, a high-income firm investing in an ACE system faces a heavier tax burden at each instant. On the other hand, it finds it optimal to invest earlier, thereby enjoying a longer stream of income. If, given the same tax burden, the latter effect is great enough, the firm will prefer the ACE system. In this article we also run a simulation which shows that preference for an ACE system is a realistic result.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1246.
Date of creation: 2004
Date of revision:
corporate taxation; open economy; timing and real options.;
This paper has been announced in the following NEP Reports:
- NEP-ACC-2004-08-31 (Accounting & Auditing)
- NEP-ALL-2004-08-31 (All new papers)
- NEP-PBE-2004-08-31 (Public Economics)
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