IDEAS home Printed from https://ideas.repec.org/p/han/dpaper/dp-274.html
   My bibliography  Save this paper

Das Standardmodell unter Unsicherheit ist ökonomisch unsinnig

Author

Listed:
  • Löffler, Andreas

Abstract

If one wants to evaluate the impact of an income tax on the value of a project or a firm the so called standard model of Johannson is usually applied. One important feature of this model is that the cost of capital are multiplied by a factor (1-s) where s is the income tax rate (assumed to be constant and deterministic). In this paper this Johannson model is considered in an uncertain world modelled by a simple binomial process. It is then shown that with appropriate parameters of this binomial model an arbitrage opportunity can be created: hence, the above mentioned relation between cost of capital before and after taxes cannot hold. Then an alternative approach for incorporating an income tax into the NPV calculus is discussed. Using this alternative it is shown that for example in the case of a perpetual rent an increase of the income tax rate leads to a lower value of the firm (compared the a constant or higher value in the Johannson model).

Suggested Citation

  • Löffler, Andreas, 2003. "Das Standardmodell unter Unsicherheit ist ökonomisch unsinnig," Hannover Economic Papers (HEP) dp-274, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  • Handle: RePEc:han:dpaper:dp-274
    as

    Download full text from publisher

    File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-274.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Back, Kerry & Pliska, Stanley R., 1991. "On the fundamental theorem of asset pricing with an infinite state space," Journal of Mathematical Economics, Elsevier, vol. 20(1), pages 1-18.
    2. Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    arbitrage-free valuation; taxes; uncertainty;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:han:dpaper:dp-274. 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: (Heidrich, Christian). General contact details of provider: http://edirc.repec.org/data/fwhande.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.