Some Additional Results on Investment, Risk Taking, and Full Loss Offset Corporate Taxation with Interest Deductibility

Jack Mintz

The Quarterly Journal of Economics, 1981, vol. 96, issue 4, 631-642

Abstract: It is argued that a full loss offset corporate tax with interest deductibility may reduce risk taking in that entrepreneurs might decrease the amount of investment made in risky projects with higher corporate tax rates. Unlike previous results in the literature, production functions with decreasing returns to scale and the possibility of equity financing of capital investment are allowed. A corporate tax that falls in part on the returns of equity owners or entrepreneurs can, under certain conditions, reduce risk taking. If the government taxes only risk, then a corporate tax with a full loss offset can encourage investment in risky projects.

Date: 1981
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