Irreversible Capital Accumulation and Nonlinear Tax Policy: A Note
We analyze the influence of tax progression on optimal investment policy and its value. We show that three possible optimal regimes arise, depending on thenature of the tax policy. If the exogenously given progression threshold lies between the optimal capital stocks in the case of higher and lower marginal profit taxes, then the optimal investment policy is independent of profit tax rates. But outside this corner solution, the optimal investment policy is conventional.
Volume (Year): 63 (2007)
Issue (Month): 1 (March)
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References listed on IDEAS
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- Michael Devereux & Harold Freeman, 1991. "A general neutral profits tax," Fiscal Studies, Institute for Fiscal Studies, vol. 12(3), pages 1-15, August.
- Paul A. Samuelson, 1964. "Tax Deductibility of Economic Depreciation to Insure Invariant Valuations," Journal of Political Economy, University of Chicago Press, vol. 72, pages 604-604.
- Seppo Kari, 1999. "Dynamic Behaviour of the Firm Under Dual Income Taxation," Research Reports 51, Government Institute for Economic Research Finland (VATT).
- 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.
- Luis H. R. Alvarez & Erkki Koskela, 2005. "Progressive Taxation and Irreversible Investment under Uncertainty," CESifo Working Paper Series 1377, CESifo Group Munich.
- Sandmo, Agnar, 1979. "A note on the neutrality of the cash flow corporation tax," Economics Letters, Elsevier, vol. 4(2), pages 173-176.
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