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Optimal Investment and Financial Strategies under Tax Rate Uncertainty

Author

Listed:
  • Alessandro Fedele

    (University of Brescia)

  • Paolo M. Panteghini

    (University of Brescia and CESifo)

  • Sergio Vergalli

    (University of Brescia and FEEM)

Abstract

In this paper we apply a real-option model to study the effects of tax rate uncertainty on a firm's decisions. In doing so, we depart from the relevant literature, which focuses on fully equity-financed investment projects. By letting a representative firm borrow optimally, we show that debt finance not only encourages investment activities but can also substantially mitigate the effect of tax rate uncertainty on investment timing.

Suggested Citation

  • Alessandro Fedele & Paolo M. Panteghini & Sergio Vergalli, 2010. "Optimal Investment and Financial Strategies under Tax Rate Uncertainty," Working Papers 2010.68, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2010.68
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    Citations

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    Cited by:

    1. Rainer Niemann & Mariana Sailer, 2023. "Is analytical tax research alive and kicking? Insights from 2000 until 2022," Journal of Business Economics, Springer, vol. 93(6), pages 1149-1212, August.
    2. Alessandro Fedele & Francesco Liucci & Andrea Mantovani, 2009. "Credit availability in the crisis: the European investment bank group," Working Papers 0913, University of Brescia, Department of Economics.
    3. Unal, Umut, 2015. "Capital Income Taxation and Welfare under DSGE Framework," MPRA Paper 68416, University Library of Munich, Germany.
    4. Chen, Wanyi & Jin, Rong, 2023. "Does tax uncertainty affect firm innovation speed?," Technovation, Elsevier, vol. 125(C).
    5. Martin Meier & Enrico Minelli & Herakles Polemarchakis, 2014. "Competitive markets with private information on both sides," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(2), pages 257-280, February.
    6. Monica Billio & Roberto Casarin, 2010. "Bayesian Estimation of Stochastic-Transition Markov-Switching Models for Business Cycle Analysis," Working Papers 1002, University of Brescia, Department of Economics.
    7. Alexandra Spaeth, 2025. "The effect of tax policy uncertainty on incentivization, managerial effort and total surplus," Journal of Business Economics, Springer, vol. 95(6), pages 839-869, August.
    8. Bisin, A. & Geanakoplos, J.D. & Gottardi, P. & Minelli, E. & Polemarchakis, H., 2011. "Markets and contracts," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 279-288.
    9. Nicola Comincioli & Paolo M. Panteghini & Sergio Vergalli, 2025. "On the main determinants of startup investment in developing countries," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 42(2), pages 459-477, July.

    More about this item

    Keywords

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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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