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Wide vs. Narrow Tax Bases under Optimal Investment Timing

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  • Paolo Panteghini

Abstract

This 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.

Suggested Citation

  • Paolo Panteghini, 2004. "Wide vs. Narrow Tax Bases under Optimal Investment Timing," CESifo Working Paper Series 1246, CESifo.
    • Handle: RePEc:ces:ceswps:_1246
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    References listed on IDEAS

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    8. Paolo M. Panteghini, 2003. "A dynamic measure of the effective tax rate," Economics Bulletin, AccessEcon, vol. 8(15), pages 1-7.
    9. Paolo Panteghini, 2002. "Endogenous Timing and the Taxation of Discrete Investment Choices," CESifo Working Paper Series 723, CESifo.
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    Cited by:

    1. Luis H. R. Alvarez & Erkki Koskela, 2005. "Progressive Taxation and Irreversible Investment under Uncertainty," CESifo Working Paper Series 1377, CESifo.
    2. Panteghini, Paolo M., 2006. "S-based taxation under default risk," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1923-1937, November.
    3. Rainer Niemann & Mariana Sailer, 2023. "Is analytical tax research alive and kicking? Insights from 2000 until 2022," Journal of Business Economics, Springer, vol. 93(6), pages 1149-1212, August.
    4. Rainer Niemann & Caren Sureth-Sloane, 2019. "Investment timing effects of wealth taxes under uncertainty and irreversibility," Journal of Business Economics, Springer, vol. 89(4), pages 385-415, June.

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    Keywords

    corporate taxation; open economy; timing and real options.;
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