Why is the Corporation Tax Not Neutral? Anticipated Tax Reform, Investment Spurts and Corporate Borrowing

Arbeitspapier

The paper shows that a corporate tax policy which is thought to be neutral may have significant incentive effects. This result is established in a model with tax advantage to debt and expectations about a forthcoming tax reform. Investment spurt effects are established and compared to those of a firm with equity finance. A tax-cut cum base-broadening tax reform which leaves the long-run investment incentives of an all-equity firm unaffected is shown to cause a substantial short run investment hike. The findings are illustrated by numerical simulations indicating the magnitudes of the spurt effects.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2000:4

Classification and Topics

• Classification: Wirtschaft ; Business Taxes and Subsidies including sales and value-added (VAT) ; Fiscal Policies and Behavior of Economic Agents: Firm
• Subject: Tax neutrality ; Tax reform ; Investment spurts ; Debt finance ; Körperschaftsteuer ; Besteuerungsprinzip ; Steuerreform ; Erwartungstheorie ; Investition ; Unternehmensfinanzierung ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Alvarez JR, Luis ; Kanniainen, Vesa ; Södersten, Jan
• Event: Veröffentlichung
• (who): Uppsala University, Department of Economics
• (where): Uppsala
• (when): 2000

Further information

• Handle: http://hdl.handle.net/10419/82929
• URN: urn:nbn:se:uu:diva-2478
• Last update: 10.03.2025, 11:45 AM CET