Asymmetric taxation of profits and losses and its influence on investment timing: Paradoxical effects of tax increases
AbstractApplying a time-discrete investment model and a setting with an entry and an exit option and cash flow uncertainty we present a dynamic analysis of the impact of various loss offset regimes on risky investment timing decisions. We find that a tax system with loss offset restrictions will not distort timing decisions if the investor can exit the project. By contrast, in a setting without exit flexibility a tax discrimination against losses can cause paradoxical effects. In that respect, we analytically identify conditions for higher taxes to increase investors' propensity to choose early investment and hence accelerate entrepreneurial investment. --
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Bibliographic InfoPaper provided by arqus - Arbeitskreis Quantitative Steuerlehre in its series arqus Discussion Papers in Quantitative Tax Research with number 134.
Date of creation: 2012
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asymmetric taxation; loss offset restrictions; timing flexibility; investment decisions; uncertainty; tax effects;
Find related papers by JEL classification:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-29 (All new papers)
- NEP-PBE-2012-07-29 (Public Economics)
- NEP-PPM-2012-07-29 (Project, Program & Portfolio Management)
- NEP-PUB-2012-07-29 (Public Finance)
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