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Optimal Investment Strategies under Demand and Tax Policy Uncertainty

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Author Info
Boehm, Hjalmar
Funke, Michael

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Abstract

In this paper we offer an analysis of the effects of uncertainty about future tax policy on irreversible investment. The main message of the paper is that investment is not much affected by the degreee of tax policy uncertainty. This is true regardless of whether random tax changes are determined endogenously or exogenously. The paper therefore indicates that reducing tax policy uncertainty is probably no magic bullet to increase private investment spending

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Publisher Info
Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 311.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_311

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Related research
Keywords: Investment uncertainty irreversibility taxation

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Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Andrew B. Abel & Janice B. Eberly, . "The Effects of Irreversibility and Uncertainty on Capital Accumulation," Rodney L. White Center for Financial Research Working Papers 21-95, Wharton School Rodney L. White Center for Financial Research.
    Other versions:
  2. Rosanne Altshuler & Harry Grubert & T. Scott Newlon, 1998. "Has U.S. Investment Abroad Become More Sensitive to Tax Rates?," NBER Working Papers 6383, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Kevin A. Hassett & R. Glenn Hubbard, 1998. "Tax Policy and Investment," NBER Working Papers 5683, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Rodrik, Dani, 1991. "Policy uncertainty and private investment in developing countries," Journal of Development Economics, Elsevier, vol. 36(2), pages 229-242, October. [Downloadable!] (restricted)
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  5. Joshua Aizenman & Nancy Marion, 1995. "Volatility, Investment and Disappointment Aversion," NBER Working Papers 5386, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Andrew B. Abel & Janice C. Eberly, 1995. "Optimal Investment with Costly Reversibility," NBER Working Papers 5091, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Hugo A. Hopenhayn & Maria E. Muniagurría, 1993. "Policy Variability and Economic Growth," Economics Working Papers 30, Department of Economics and Business, Universitat Pompeu Fabra.
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  8. Luis H. R. Alvarez & Vesa Kanniainen, 1997. "Valuation of Irreversible Entry Options under Uncertainty and Taxation," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH.
  9. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-33, March.
  10. Andrew B. Abel & Avinash K. Dixit & Janice B. Eberly & Robert S. Pindyck, . "Options, the Value of Capital, and Investment," Rodney L. White Center for Financial Research Working Papers 15-95, Wharton School Rodney L. White Center for Financial Research.
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  11. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October. [Downloadable!] (restricted)
  12. Hassett, Kevin A & Metcalf, Gilbert E, 1999. "Investment with Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?," Economic Journal, Royal Economic Society, vol. 109(457), pages 372-93, July. [Downloadable!] (restricted)
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  13. Douglas G. Steigerwald & Charles Stuart, 1997. "Econometric Estimation Of Foresight: Tax Policy And Investment In The United States," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 32-40, February. [Downloadable!] (restricted)
  14. Rainer Niemann, 1999. "Neutral Taxation under Uncertainty - a Real Options Approach," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 56(1), pages 51-, March.
  15. Alvarez, Luis H. R. & Kanniainen, Vesa & Sodersten, Jan, 1998. "Tax policy uncertainty and corporate investment: A theory of tax-induced investment spurts," Journal of Public Economics, Elsevier, vol. 69(1), pages 17-48, July. [Downloadable!] (restricted)
  16. Pennings, Enrico, 2000. "Taxes and stimuli of investment under uncertainty," European Economic Review, Elsevier, vol. 44(2), pages 383-391, February. [Downloadable!] (restricted)
  17. Abel, Andrew B & Eberly, Janice C, 1994. "A Unified Model of Investment under Uncertainty," American Economic Review, American Economic Association, vol. 84(5), pages 1369-84, December. [Downloadable!] (restricted)
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  18. Caballero, Ricardo J, 1991. "On the Sign of the Investment-Uncertainty Relationship," American Economic Review, American Economic Association, vol. 81(1), pages 279-88, March. [Downloadable!] (restricted)
  19. Ghosal, Vivek & Loungani, Prakash, 1996. "Product Market Competition and the Impact of Price Uncertainty on Investment: Some Evidence from US Manufacturing Industries," Journal of Industrial Economics, Blackwell Publishing, vol. 44(2), pages 217-28, June. [Downloadable!] (restricted)
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  20. Mackie-Mason, Jeffrey K., 1990. "Some nonlinear tax effects on asset values and investment decisions under uncertainty," Journal of Public Economics, Elsevier, vol. 42(3), pages 301-327, August. [Downloadable!] (restricted)
  21. Zeira, Joseph, 1990. "Cost uncertainty and the rate of investment," Journal of Economic Dynamics and Control, Elsevier, vol. 14(1), pages 53-63, February. [Downloadable!] (restricted)
  22. Luigi Guiso & Giuseppe Parigi, 1999. "Investment And Demand Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 185-227, February. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Anthony Bende-Nabende & Jim Slater, 2003. "Private capital formation: Short- and long-run crowding-in (out) effects in ASEAN, 1971-99," Economics Bulletin, Economics Bulletin, vol. 3(28), pages 1-16. [Downloadable!]
  2. Paolo Panteghini, 2002. "Asymmetric Taxation under Incremental and Sequential Investment," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  3. Paolo Panteghini, 2001. "Corporate Tax Asymmetries under Investment Irreversibility," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  4. Rainer Niemann, 2007. "The Impact of Tax Uncertainty on Irreversible Investment," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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