Das Standardmodell unter Unsicherheit ist ökonomisch unsinnig
AbstractIf one wants to evaluate the impact of an income tax on the value of a project or a firm the so called standard model of Johannson is usually applied. One important feature of this model is that the cost of capital are multiplied by a factor (1-s) where s is the income tax rate (assumed to be constant and deterministic). In this paper this Johannson model is considered in an uncertain world modelled by a simple binomial process. It is then shown that with appropriate parameters of this binomial model an arbitrage opportunity can be created: hence, the above mentioned relation between cost of capital before and after taxes cannot hold. Then an alternative approach for incorporating an income tax into the NPV calculus is discussed. Using this alternative it is shown that for example in the case of a perpetual rent an increase of the income tax rate leads to a lower value of the firm (compared the a constant or higher value in the Johannson model).
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover with number dp-274.
Length: 17 pages
Date of creation: Mar 2003
Date of revision:
arbitrage-free valuation; taxes; uncertainty;
Find related papers by JEL classification:
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-03-10 (All new papers)
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.:
- Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June.
- Back, Kerry & Pliska, Stanley R., 1991. "On the fundamental theorem of asset pricing with an infinite state space," Journal of Mathematical Economics, Elsevier, vol. 20(1), pages 1-18.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dietrich, Karl).
If references are entirely missing, you can add them using this form.