Asymmetric taxation of profits and losses and its influence on investment timing: Paradoxical effects of tax increases
Applying a time-discrete investment model and a setting with an entry and an exit option and cash flow uncertainty we present a dynamic analysis of the impact of various loss offset regimes on risky investment timing decisions. We find that a tax system with loss offset restrictions will not distort timing decisions if the investor can exit the project. By contrast, in a setting without exit flexibility a tax discrimination against losses can cause paradoxical effects. In that respect, we analytically identify conditions for higher taxes to increase investors' propensity to choose early investment and hence accelerate entrepreneurial investment.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.arqus.info/|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Luis H. R. Alvarez & Erkki Koskela, 2008. "Progressive Taxation, Tax Exemption, and Irreversible Investment under Uncertainty," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(1), pages 149-169, 02.
- Pennings, Enrico, 2000. "Taxes and stimuli of investment under uncertainty," European Economic Review, Elsevier, vol. 44(2), pages 383-391, February.
- Agliardi, Elettra, 2001. "Taxation and Investment Decisions: A Real Options Approach," Australian Economic Papers, Wiley Blackwell, vol. 40(1), pages 44-55, March.
- Agliardi, Elettra & Agliardi, Rossella, 2008. "Progressive taxation and corporate liquidation policy," Economic Modelling, Elsevier, vol. 25(3), pages 532-541, May.
- Paolo Panteghini, 2000.
"On Corporate Tax Asymmetries and Neutrality,"
CESifo Working Paper Series
276, CESifo Group Munich.
- Paolo Panteghini, 2001.
"Corporate Tax Asymmetries under Investment Irreversibility,"
CESifo Working Paper Series
548, CESifo Group Munich.
- Paolo M. Panteghini, 2001. "Corporate Tax Asymmetries under Investment Irreversibility," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(3), pages 207-, July.
- Paolo M. Panteghini, 2005.
"Asymmetric Taxation under Incremental and Sequential Investment,"
Journal of Public Economic Theory,
Association for Public Economic Theory, vol. 7(5), pages 761-779, December.
- Paolo Panteghini, 2002. "Asymmetric Taxation under Incremental and Sequential Investment," CESifo Working Paper Series 717, CESifo Group Munich.
- Stefan Hirth & Marliese Uhrig-Homburg, 2010. "Investment Timing when External Financing is Costly," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(7-8), pages 929-949.
- Cooper, Michael & Knittel, Matthew, 2006. "Partial Loss Refundability: How Are Corporate Tax Losses Used?," National Tax Journal, National Tax Association, vol. 59(3), pages 651-63, September.
When requesting a correction, please mention this item's handle: RePEc:zbw:arqudp:134. 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: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.