The Capital Structure Choice and the Consumption Tax

Andreas Andrikopoulos

European Research Studies Journal, 2012, vol. XV, issue 1, 3-22

Abstract: The consumption tax affects the consumer, but also affects the wealth of the producer because of the tax incidence effect. It affects cash flows from corporate investment, bears influence on capital budgeting choices on investment timing and financing and the respective agency conflicts between shareholders and creditors. In the context of irreversible investment, our model shows that consumption taxation delays investment and precipitates default. Furthermore, we find that the consumption tax has a negative effect on the agency costs of debt, the yield spreads and the optimal leverage ratio. Finally, the model also produces implications for governmental tax policy.

Keywords: Real Options; Consumption Tax; Tax Incidence; Agency Conflicts; Capital Structure (search for similar items in EconPapers)
JEL-codes: D81 D92 E22 G31 H21 H22 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.ersj.eu/repec/ers/papers/12_1_p1.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ers:journl:v:xv:y:2012:i:1:p:3-22

Access Statistics for this article

More articles in European Research Studies Journal from European Research Studies Journal
Bibliographic data for series maintained by Marios Agiomavritis ().