Arbeitspapier

Corporate Deductibility Provisions and Managerial Incentives

Using an agency model of firm behavior, the paper analyzes whether the cost of investment should be tax exempt. The findings suggest that, when managers engage in wasteful capital expenditures, welfare may decline if the cost of investment is tax deductible, as commonly advocated. The extent to which the return on investment should be taxed depends on how the internal provision of incentive pay and external monitoring by banks interact in constraining the manager and whether retained earnings or new share issues finance investments at the margin. The results are informative for the design of investment subsidies which might be integrated in corporate tax systems such as an Allowance for Corporate Equity or a cash-flow tax.

Language
Englisch

Bibliographic citation
Series: CESifo Working Paper ; No. 4549

Classification
Wirtschaft
Business Taxes and Subsidies including sales and value-added (VAT)
Firm Behavior: Theory
Subject
corporate taxation
investment subsidies
corporate governance
delegated monitoring
incentive contract

Event
Geistige Schöpfung
(who)
Köthenbürger, Marko
Stimmelmayr, Michael
Event
Veröffentlichung
(who)
Center for Economic Studies and ifo Institute (CESifo)
(where)
Munich
(when)
2013

Handle
Last update
20.09.2024, 8:23 AM CEST

Data provider

This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Arbeitspapier

Associated

  • Köthenbürger, Marko
  • Stimmelmayr, Michael
  • Center for Economic Studies and ifo Institute (CESifo)

Time of origin

  • 2013

Other Objects (12)