Irreversible Investment, Financing Choice and Asymmetric Corporate Taxes
AbstractThis paper provides a discrete-time framework for analyzing a firm's investment and financial choices under uncertainty. The investment decision is incremental and subject to a parameterized degree of irreversibility. Corporate taxes are asymmetric, but we allow imperfect carry-forward or carry-back of losses. Personal taxes are also levied. The paper focusses on the impact of various tax rules and corporate borrowing constraints on the firm's choices particularly the desired capital stock. The paper also highlights the effects of depreciation, interest rates, and personal taxes. Numerical simulations complement the analytical results to illustrate when taxes and borrowing constraints matter the most.
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Bibliographic InfoPaper provided by University of Toronto, Department of Economics in its series Working Papers with number faig-96-01.
Length: 44 pages
Date of creation: 11 May 1996
Date of revision:
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Irreversible investment; corporate finance; assymetric taxation;
Find related papers by JEL classification:
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- G3 - Financial Economics - - Corporate Finance and Governance
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