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S-based taxation under default risk

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  • 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. 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.
  2. 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.
  3. 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 331-49, June.
  4. Paolo Panteghini, 2001. "Corporate Tax Asymmetries under Investment Irreversibility," CESifo Working Paper Series 548, CESifo Group Munich.
  5. 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.
  6. Peter Birch Sørensen, 2003. "Neutral Taxation of Shareholder Income: A Norwegian Tax Reform Proposal," CESifo Working Paper Series 1036, CESifo Group Munich.
  7. 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.
  8. Paolo Panteghini, 2002. "Asymmetric Taxation under Incremental and Sequential Investment," CESifo Working Paper Series 717, CESifo Group Munich.
  9. Peter Sørensen, 2005. "Neutral Taxation of Shareholder Income," International Tax and Public Finance, Springer, vol. 12(6), pages 777-801, November.
  10. Ernst Fehr & Wolfgang Wiegard, 2001. "The Incidence of an Extended Ace Corporation Tax," CESifo Working Paper Series 484, CESifo Group Munich.
  11. Michael Devereux & Harold Freeman, 1991. "A general neutral profits tax," Fiscal Studies, Institute for Fiscal Studies, vol. 12(3), pages 1-15, August.
  12. Hayne E. Leland., 1994. "Corporate Debt Value, Bond Covenants, and Optimal Capital Structure," Research Program in Finance Working Papers RPF-233, University of California at Berkeley.
  13. 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.
  14. 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 103-14, January.
  15. 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.
  16. 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.
  17. Paolo M. Panteghini, 2004. "Neutrality Properties of Firm Taxation under Default Risk," Economics Bulletin, AccessEcon, vol. 8(4), pages 1-7.
  18. repec:ebl:ecbull:v:8:y:2004:i:4:p:1-7 is not listed on IDEAS
  19. Michael P. Devereux, 2009. "Taxing Risky Investment," Working Papers 0919, Oxford University Centre for Business Taxation.
  20. Fehr, H. & Wiegard, W., 1998. "The Incidence of an Extended ACE Corporation Tax," Papers 16/98, Norwegian School of Economics and Business Administration-.
  21. Johannes Becker & Clemens Fuest, 2005. "Does Germany Collect Revenue from Taxing Capital Income?," CESifo Working Paper Series 1489, CESifo Group Munich.
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Cited by:

  1. 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.
  2. Paolo Panteghini, 2006. "The Capital Structure of Multinational Companies under Tax Competition," CESifo Working Paper Series 1721, CESifo Group Munich.
  3. Paolo Panteghini & Sergio Vergalli, 2016. "Accelerated Depreciation, Default Risk and Investment Decisions," CESifo Working Paper Series 5713, CESifo Group Munich.
  4. Paolo Panteghini, 2006. "A Simple Explanation for the Unfavorable Tax Treatment of Investment Costs," CESifo Working Paper Series 1784, CESifo Group Munich.
  5. Paolo M. Panteghini & Sergio Vergalli, 2016. "Accelerated Depreciation, Default Risk and Investment Decisions," Working Papers 2016.14, Fondazione Eni Enrico Mattei.
  6. Vesa Kanniainen & Paolo Panteghini, 2008. "Tax Neutrality: Illusion or Reality? The Case of Entrepreneurship," CESifo Working Paper Series 2306, CESifo Group Munich.
  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. Francesca Barion & Raffaele Miniaci & Paolo M Panteghini & Maria Laura Parisi, 2010. "Profit shifting by debt financing in Europe," Working Papers 1007, University of Brescia, Department of Economics.
  9. Raffaele Miniaci & Paolo Panteghini & Maria Laura Parisi, 2011. "Debt shifting in Europe," Working Papers 1121, Oxford University Centre for Business Taxation.
  10. Panteghini, Paolo M. & Vergalli, Sergio, 2016. "Accelerated Depreciation, Default Risk and Investment Decisions," ET: Economic Theory 232220, Fondazione Eni Enrico Mattei (FEEM).

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