Taxes, Investment and Q

Jeremy Edwards and Michael Keen

The Review of Economic Studies, 1985, vol. 52, issue 4, 665-679

Abstract: This paper attempts to provide a unified analysis of the effects of taxation on the equilibrium value of marginal q under alternative financial policies. It is shown that the q approach does not avoid all the specification problems associated with analyses based on the cost of capital. The (theoretically and empirically) crucial relationship between average and marginal q is also examined, and it is shown that, under UK and US tax rules, the possibility of winding up precludes persistent undervaluation in equilibrium.

Date: 1985
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:52:y:1985:i:4:p:665-679.

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