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The Dynamic Effects of Tax Law Asymmetries

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  • Alan J. Auerbach

Abstract

Under the laws of most countries, a distinction is made between gains and losses by businesses. Losses that must be "carried forward" are subjept to two penalties: a loss of interest, and expiration. Previous examinations have focused on the higher expected tax payments such a tax system without "full loss offset" imposes on risky projects. This paper presents a dynamic analysis of the impact of taxation on investment when gains and losses are treated asymmetrically. The results demonstrate how firm characteristics and the timing of taxes can influence behaviour.

Suggested Citation

  • Alan J. Auerbach, 1986. "The Dynamic Effects of Tax Law Asymmetries," Review of Economic Studies, Oxford University Press, vol. 53(2), pages 205-225.
  • Handle: RePEc:oup:restud:v:53:y:1986:i:2:p:205-225.
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    References listed on IDEAS

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    1. Alan J. Auerbach, 1982. "The New Economics of Accelerated Depreciation," NBER Working Papers 0848, National Bureau of Economic Research, Inc.
    2. J. E. Stiglitz, 1969. "The Effects of Income, Wealth, and Capital Gains Taxation on Risk-Taking," The Quarterly Journal of Economics, Oxford University Press, vol. 83(2), pages 263-283.
    3. Evsey D. Domar & Richard A. Musgrave, 1944. "Proportional Income Taxation and Risk-Taking," The Quarterly Journal of Economics, Oxford University Press, vol. 58(3), pages 388-422.
    4. King, Mervyn A., 1975. "Taxation, corporate financial policy, and the cost of capital : A comment," Journal of Public Economics, Elsevier, vol. 4(3), pages 271-279, August.
    5. George E. Hoffer & Robert J. Reilly, 1983. "Analysis," Challenge, Taylor & Francis Journals, vol. 26(4), pages 56-57, September.
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