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S-based taxation under default risk

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Listed author(s):
  • Panteghini, Paolo M.

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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File URL: http://www.sciencedirect.com/science/article/pii/S0047-2727(06)00003-X
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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 90 (2006)
Issue (Month): 10-11 (November)
Pages: 1923-1937

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Handle: RePEc:eee:pubeco:v:90:y:2006:i:10-11:p:1923-1937
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  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. 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.
  3. Brennan, Michael J & Schwartz, Edwardo S, 1978. "Corporate Income Taxes, Valuation, and the Problem of Optimal Capital Structure," The Journal of Business, University of Chicago Press, vol. 51(1), pages 103-114, January.
  4. Leland, Hayne E, 1994. " Corporate Debt Value, Bond Covenants, and Optimal Capital Structure," Journal of Finance, American Finance Association, vol. 49(4), pages 1213-1252, September.
  5. Devereux, Michael P., 2003. "Taxing Risky Investment," CEPR Discussion Papers 4053, C.E.P.R. Discussion Papers.
  6. 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.
  7. Peter Birch Sørensen, 2003. "Neutral Taxation of Shareholder Income: A Norwegian Tax Reform Proposal," CESifo Working Paper Series 1036, CESifo Group Munich.
  8. Johannes Becker & Clemens Fuest, 2005. "Does Germany Collect Revenue from Taxing Capital Income?," CESifo Working Paper Series 1489, CESifo Group Munich.
  9. Massimo Bordignon & Silvia Giannini & Paolo Panteghini, 2001. "Reforming Business Taxation: Lessons from Italy?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(2), pages 191-210, March.
  10. 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.
  11. Fehr, H. & Wiegard, W., 1998. "The Incidence of an Extended ACE Corporation Tax," Papers 16/98, Norwegian School of Economics and Business Administration-.
  12. Paolo M. Panteghini, 2001. "Corporate Tax Asymmetries under Investment Irreversibility," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(3), pages 207-207, July.
  13. 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.
  14. repec:ebl:ecbull:v:8:y:2004:i:4:p:1-7 is not listed on IDEAS
  15. Ernst Fehr & Wolfgang Wiegard, 2001. "The Incidence of an Extended Ace Corporation Tax," CESifo Working Paper Series 484, CESifo Group Munich.
  16. 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.
  17. Peter Sørensen, 2005. "Neutral Taxation of Shareholder Income," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(6), pages 777-801, November.
  18. Paolo M. Panteghini, 2004. "Wide versus Narrow Tax Bases under Optimal Investment Timing," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(4), pages 482-482, December.
  19. 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.
  20. Paolo M. Panteghini, 2004. "Neutrality Properties of Firm Taxation under Default Risk," Economics Bulletin, AccessEcon, vol. 8(4), pages 1-7.
  21. McDonald, Robert L & Siegel, Daniel R, 1985. "Investment and the Valuation of Firms When There Is an Option to Shut Down," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 331-349, June.
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Cited by:

  1. Paolo Panteghini, 2009. "The capital structure of multinational companies under tax competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(1), pages 59-81, February.
  2. Francesca Barion & Raffaele Miniaci & Paolo Panteghini & Maria Laura Parisi, 2010. "Profit Shifting by Debt Financing in Europe," CESifo Working Paper Series 2985, CESifo Group Munich.
  3. Paolo M. Panteghini, 2012. "Corporate Debt, Hybrid Securities, and the Effective Tax Rate," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(1), pages 161-186, 02.
  4. R. Miniaci & M. Parisi & P. Panteghini, 2014. "Debt shifting in Europe," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(3), pages 397-435, June.
  5. Vesa Kanniainen & Paolo M. Panteghini, 2013. "Tax Neutrality: Illusion or Reality? The Case of Entrepreneurship," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 69(2), pages 167-193, June.
  6. Paolo M. Panteghini & Sergio Vergalli, 2016. "Accelerated depreciation, default risk and investment decisions," Journal of Economics, Springer, vol. 119(2), pages 113-130, October.
  7. Panteghini, Paolo M., 2007. "Interest deductibility under default risk and the unfavorable tax treatment of investment costs: A simple explanation," Economics Letters, Elsevier, vol. 96(1), pages 1-7, July.
  8. Paolo Panteghini, 2006. "A Simple Explanation for the Unfavorable Tax Treatment of Investment Costs," CESifo Working Paper Series 1784, CESifo Group Munich.

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