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Taxation and Corporate Risk-Taking

Listed author(s):
  • Dominika Langenmayr
  • Rebecca Lester

We study whether the corporate tax system provides incentives for risky firm investment. We analytically and empirically show two main findings: first, risk-taking is positively related to the length of tax loss periods because the loss rules shift some risk to the government; and second, the tax rate has a positive effect on risk-taking for firms that expect to use losses, and a weak negative effect for those that cannot. Thus, the sign of the tax effect on risky investment hinges on firm-specific expectations of future loss recovery.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 6566.

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Date of creation: 2017
Handle: RePEc:ces:ceswps:_6566
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