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Investment Attraction and Tax Reform: a Stochastic Model

In: Operations Research Proceedings 2005

Author

Listed:
  • Vadim I. Arkin

    (Central Economics and Mathematics Institute)

  • Alexander D. Slastnikov

    (Central Economics and Mathematics Institute)

  • Svetlana V. Arkina

    (University Paris I)

Abstract

Summary We study a model of the behavior of a potential investor (under risk and uncertainty) who wishes to invest in a project of creating a new enterprise and chooses an investment time (timing problem). This model takes the tax environment exhaustively into account. An optimal rule of investment and its dependence on parameters of tax system are obtained. Investigation is based on solving an optimal stopping problem for two-dimensional geometric Brownian motion. We apply Feinmann-Kac formula and variational inequalities as basic methods for deriving the closed-form formulas for optimal investment time and expected tax revenues from future enterprise into budgets of different levels. Based on those formulas, an analysis of the Russian reform of corporate profit taxation (2002) is undertaken, as well as of the tax cuts in VAT (2004) and Unified Social Tax (UST) Rates (2005).

Suggested Citation

  • Vadim I. Arkin & Alexander D. Slastnikov & Svetlana V. Arkina, 2006. "Investment Attraction and Tax Reform: a Stochastic Model," Operations Research Proceedings, in: Hans-Dietrich Haasis & Herbert Kopfer & Jörn Schönberger (ed.), Operations Research Proceedings 2005, pages 501-506, Springer.
    • Handle: RePEc:spr:oprchp:978-3-540-32539-0_79
    DOI: 10.1007/3-540-32539-5_79
    as

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