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S-Based Taxation under Default Risk

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Author Info
Paolo Panteghini

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Abstract

This article studies the characteristics of a S-based tax system under default risk. In particular we show that its neutrality properties depend on whether debt is protected or unprotected. In the former case, this system is neutral. In the latter case, where default timing is optimally chosen by shareholders, the S-based system is neutral with respect to real decisions only if the firm's and the lender's tax rate are equal. However, the shareholders? decision to default is always distorted.

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Paper provided by University of Brescia, Department of Economics in its series Working Papers with number ubs0506.

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Date of creation: 2005
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Handle: RePEc:ubs:wpaper:ubs0506

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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. Michael Devereux & Harold Freeman, 1991. "A general neutral profits tax," Fiscal Studies, Institute for Fiscal Studies, vol. 12(3), pages 1-15, August.
  2. Paolo Panteghini, 2001. "Corporate Tax Asymmetries under Investment Irreversibility," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  3. Bonds, Stephen R. & Devereux, Michael P., 1995. "On the design of a neutral business tax under uncertainty," Journal of Public Economics, Elsevier, vol. 58(1), pages 57-71, September. [Downloadable!] (restricted)
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  4. Paolo M. Panteghini, 2005. "Asymmetric Taxation under Incremental and Sequential Investment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(5), pages 761-779, December. [Downloadable!] (restricted)
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  5. Ernst Fehr & Wolfgang Wiegard, 2001. "The Incidence of an Extended Ace Corporation Tax," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  6. Michael Keen & John King, 2002. "The Croatian profit tax: an ACE in practice," Fiscal Studies, Institute for Fiscal Studies, vol. 23(3), pages 401-418, September.
  7. Peter Birch Sørensen, 2003. "Neutral Taxation of Shareholder Income: A Norwegian Tax Reform Proposal," EPRU Working Paper Series 03-06, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  8. Paolo M. Panteghini, 2004. "Wide versus Narrow Tax Bases under Optimal Investment Timing," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(4), pages 482-, December.
  9. Devereux, Michael P, 2003. "Taxing Risky Investment," CEPR Discussion Papers 4053, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Bond, Stephen R. & Devereux, Michael P., 2003. "Generalised R-based and S-based taxes under uncertainty," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1291-1311, May. [Downloadable!] (restricted)
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  11. Boadway, Robin & Bruce, Neil, 1984. "A general proposition on the design of a neutral business tax," Journal of Public Economics, Elsevier, vol. 24(2), pages 231-239, July. [Downloadable!] (restricted)
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  12. Leland, Hayne E, 1994. " Corporate Debt Value, Bond Covenants, and Optimal Capital Structure," Journal of Finance, American Finance Association, vol. 49(4), pages 1213-52, September. [Downloadable!] (restricted)
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  13. Paolo M. Panteghini, 2004. "Neutrality Properties of Firm Taxation under Default Risk," Economics Bulletin, Economics Bulletin, vol. 8(4), pages 1-7. [Downloadable!]
  14. Peter Birch Sorensen, 2003. "Neutral Taxation of Shareholder Income: A Norwegian Tax Reform Proposal," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  15. Johannes Becker & Clemens Fuest, 2005. "Does Germany Collect Revenue from Taxing Capital Income?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  16. Massimo Bordignon & Silvia Giannini & Paolo Panteghini, 2001. "Reforming Business Taxation: Lessons from Italy?," International Tax and Public Finance, Springer, vol. 8(2), pages 191-210, March. [Downloadable!] (restricted)
  17. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May. [Downloadable!] (restricted)
  18. Fehr, H. & Wiegard, W., 1998. "The Incidence of an Extended ACE Corporation Tax," Papers 16/98, Norwegian School of Economics and Business Administration-.
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(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. Paolo M. Panteghini, 2008. "Corporate Debt, Hybrid Securities and the Effective Tax Rate," Working Papers 0804, University of Brescia, Department of Economics. [Downloadable!]
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  2. Paolo Panteghini, 2006. "The Capital Structure of Multinational Companies under Tax Competition," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  3. Paolo Panteghini, 2006. "A Simple Explanation for the Unfavorable Tax Treatment of Investment Costs," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  4. Vesa Kanniainen & Paolo Panteghini, 2008. "Tax Neutrality: Illusion or Reality? The Case of Entrepreneurship," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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