Irreversible Investment Decisions Under Uncertainty with Tax Holidays

Jyh-Bang Jou
Additional contact information
Jyh-Bang Jou: National Taiwan University

Public Finance Review, 2000, vol. 28, issue 1, 66-81

Abstract: This article investigates how a corporate tax holiday affects a firm's incentive to invest when irreversibility interacts with uncertainty. The firm has a monopoly right to exercise a single, discrete, infinitely lived project. After exercising the project, at each instant, the firm receives one unit of output while incurring a fixed amount of operating and maintenance costs. The firm can temporarily and costlessly both shut down and resume its operation. A more generous tax incentive (i.e., a longer tax holiday or a lower corporate tax rate) will discourage a firm's incentive to invest if the firm's value from delaying investment is increased by more than its value of investing immediately. This is more likely to happen if capital assets either are shortlived or yield a return that is very volatile.

Date: 2000
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/109114210002800104 (text/html)

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:sae:pubfin:v:28:y:2000:i:1:p:66-81

DOI: 10.1177/109114210002800104

Access Statistics for this article

More articles in Public Finance Review
Bibliographic data for series maintained by SAGE Publications ().