Wide versus Narrow Tax Bases under Optimal Investment Timing
This article compares an ACE system with a CBIT system in an open economy. Using a real-option approach, we show that, if a firm can decide when to invest, a trade-off is found. According to traditional wisdom, a high-income firm investing in an ACE system faces a heavier tax burden at each instant. On the other hand, it finds it optimal to invest earlier, thereby enjoying a longer stream of income. If, given the same tax burden, the latter effect is great enough, the firm will prefer the ACE system. In this article we also run a simulation that shows that preference for an ACE system is a realistic result.
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Volume (Year): 60 (2004)
Issue (Month): 4 (December)
Pages: 482-
| Handle: | RePEc:mhr:finarc:urn:sici:0015-2218(200412)60:4_482:wvntbu_2.0.tx_2-6 |
| Contact details of provider: | Web page: http://www.mohr.de/fa
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| Order Information: | Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany Email: |
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