Cash-flow business taxation revisited: Bankruptcy, risk aversion and asymmetric information

Arbeitspapier

It is well-known that cash-flow business taxes with full loss-offset, and their present-value equivalents, are neutral with respect to firms' investment decisions when firms are riskneutral and there are no distortions. We study the effects of cash-flow business taxation when there is bankruptcy risk, when firms are risk-averse, and when financial intermediaries face asymmetric information problems in financing heterogeneous firms. Cash-flow taxes remain neutral under bankruptcy risk alone, but can distort the entry and investment decisions of firms under both risk-aversion and asymmetric information. We characterize the nature of such distortions and show that cash-flow taxes can increase social welfare in this context. An ACE tax is equivalent to a cash-flow tax but is easier to implement under asymmetric information.

Objekt anzeigen

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Queen's Economics Department Working Paper ; No. 1372

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Taxation and Subsidies: Efficiency; Optimal Taxation ; Business Taxes and Subsidies including sales and value-added (VAT)
• Thema: cash-flow tax ; risk-averse firms ; asymmetric information

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Boadway, Robin W. ; Sato, Motohiro ; Tremblay, Jean-François
• Ereignis: Veröffentlichung
• (wer): Queen's University, Department of Economics
• (wo): Kingston (Ontario)
• (wann): 2016

Weitere Informationen

• Handle: http://hdl.handle.net/10419/149098