IDEAS home Printed from https://ideas.repec.org/p/btx/wpaper/1531.html
   My bibliography  Save this paper

Cash-flow business taxation revisited: bankruptcy, risk aversion and asymmetric information

Author

Listed:
  • Robin Boadway

    () (Queen¡¯s University)

  • Motohiro Sato

    () (Hitotsubashi University)

  • Jean-Francois Tremblay

    () (University of Ottawa)

Abstract

It is well-known that cash-flow business taxes with full loss-offset, and their present-value equivalents, are neutral with respect to firms¡¯ investment decisions when firms are riskneutral. We study the effects of cash-flow business taxation when there is bankruptcy risk, when firms are risk-averse, and when financial intermediaries face asymmetric information problems in financing heterogeneous firms. Cash-flow taxes remain neutral under bankruptcy risk alone, but can distort the entry and investment decisions of firms under both risk-aversion and asymmetric information. The ACE tax distorts firms¡¯ decisions when bankruptcy risk exists. We characterize the nature of such distortions and consider how cash-flow taxes would have to be amended to achieve neutrality.

Suggested Citation

  • Robin Boadway & Motohiro Sato & Jean-Francois Tremblay, 2015. "Cash-flow business taxation revisited: bankruptcy, risk aversion and asymmetric information," Working Papers 1531, Oxford University Centre for Business Taxation.
  • Handle: RePEc:btx:wpaper:1531
    as

    Download full text from publisher

    File URL: http://www.sbs.ox.ac.uk/sites/default/files/Business_Taxation/Docs/Publications/Working_Papers/series-15/WP1531.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Paolo Panteghini & Maria Laura Parisi & Francesca Pighetti, 2012. "Italy's ACE Tax and its Effect on a Firm's Leverage," CESifo Working Paper Series 3869, CESifo.
    3. Jack M. Mintz, 1981. "Some Additional Results on Investment, Risk Taking, and Full Loss Offset Corporate Taxation with Interest Deductibility," The Quarterly Journal of Economics, Oxford University Press, vol. 96(4), pages 631-642.
    4. Vesa Kanniainen & Paolo M. Panteghini, 2013. "Tax Neutrality: Illusion or Reality? The Case of Entrepreneurship," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 69(2), pages 167-193, June.
    5. Wolfgang Buchholz & Kai A. Konrad, 2014. "Taxes on risky returns — an update," Working Papers tax-mpg-rps-2014-10, Max Planck Institute for Tax Law and Public Finance.
    6. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
    7. Vesa Kanniainen & Paolo M. Panteghini, 2013. "Tax Neutrality: Illusion or Reality? The Case of Entrepreneurship," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 69(2), pages 167-193, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robin W. Boadway & Jean-François Tremblay, 2016. "Modernizing Business Taxation," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 452, May.

    More about this item

    Keywords

    cash-flow tax; risk-averse firms; asymmetric information;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:btx:wpaper:1531. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dongxian Guo) The email address of this maintainer does not seem to be valid anymore. Please ask Dongxian Guo to update the entry or send us the correct email address. General contact details of provider: http://edirc.repec.org/data/sbsoxuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.