Tax Rate Uncertainty and Investment Behavior
This paper deals with the effects of tax rate uncertainty on risk-neutral and risk-averse investment behavior. We analyze effects of stochastic tax rates on both real and financial investment. It emerges that under risk neutrality as well as under risk aversion, increased tax rate uncertainty has an ambiguous impact on investment behavior, depending on the investorâ€™s utility function and the investment projectâ€™s structure of cash flows and depreciation deductions. The popular view that tax policy uncertainty depresses real investment is rejected. Tax neutrality in the light of tax policy uncertainty is defined more precisely. Neutrality results for the Johansson-Samuelson tax and the cash flow tax can be widely confirmed for tax rate uncertainty.
|Date of creation:||2001|
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- Hassett, Kevin A & Metcalf, Gilbert E, 1999.
"Investment with Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?,"
Royal Economic Society, vol. 109(457), pages 372-393, July.
- Kevin Hassett & Gilbert E. Metcalf, 1994. "Investment with Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?," NBER Working Papers 4780, National Bureau of Economic Research, Inc.
- Kevin A. Hassett & Gilbert E. Metcalf, 1998. "Investment With Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?," Discussion Papers Series, Department of Economics, Tufts University 9823, Department of Economics, Tufts University.
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- Alan J. Auerbach & James R. Hines Jr., 1988. "Investment Tax Incentives and Frequent Tax Reforms," NBER Working Papers 2492, National Bureau of Economic Research, Inc.
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- Skinner, Jonathan, 1988. "The welfare cost of uncertain tax policy," Journal of Public Economics, Elsevier, vol. 37(2), pages 129-145, November.
- 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.
- John Pointon, 1998. "Share Valuation under Geometric Brownian Motion with a Poisson Imputation Tax Change," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(1&2), pages 103-113.
- Bizer, David S & Judd, Kenneth L, 1989. "Taxation and Uncertainty," American Economic Review, American Economic Association, vol. 79(2), pages 331-336, May.
- Rainer Niemann, 1999. "Neutral Taxation under Uncertainty - a Real Options Approach," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 56(1), pages 51-66, March.
- Alm, James, 1988. "Uncertain Tax Policies, Individual Behavior, and Welfare," American Economic Review, American Economic Association, vol. 78(1), pages 237-245, March.
- Agliardi, Elettra, 2001. "Taxation and Investment Decisions: A Real Options Approach," Australian Economic Papers, Wiley Blackwell, vol. 40(1), pages 44-55, March. Full references (including those not matched with items on IDEAS)
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