The Role of Taxation in Real and Financial Decisions Under Uncertainty

C. Carrera

Working Paper from Economics Department, Queen's University

Abstract: The paper introduces taxes on income and profit into a model of a stock market economy. The optimal choice of capital stock is then analyzed under assumptions that guarantee unanimous shareholders' preferences and a formula for the cost of capital is deduced. There then follows a discussion of the optimal mode of finance. Shareholders may agree on the optimal method of finance but there are circumstances in which investors with high marginal tax rates will support policies that will not be agreed to by shareholder in lower tax brackets. The neutrality issue is discussed and there are some brief remarks relating the results of the model to empirical observation.

Pages: 25
Date: 1982
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:488

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