Cash-flow business taxation revisited: bankruptcy, risk aversion and asymmetric information
Robin Boadway (),
Motohiro Sato () and
Jean-François Tremblay ()
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Motohiro Sato: Hitotsubashi University
No 1531, Working Papers from Oxford University Centre for Business Taxation
It is well-known that cash-flow business taxes with full loss-offset, and their present-value equivalents, are neutral with respect to firms¡¯ investment decisions when firms are riskneutral. We study the effects of cash-flow business taxation when there is bankruptcy risk, when firms are risk-averse, and when financial intermediaries face asymmetric information problems in financing heterogeneous firms. Cash-flow taxes remain neutral under bankruptcy risk alone, but can distort the entry and investment decisions of firms under both risk-aversion and asymmetric information. The ACE tax distorts firms¡¯ decisions when bankruptcy risk exists. We characterize the nature of such distortions and consider how cash-flow taxes would have to be amended to achieve neutrality.
Keywords: cash-flow tax; risk-averse firms; asymmetric information (search for similar items in EconPapers)
JEL-codes: H21 H25 (search for similar items in EconPapers)
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Working Paper: Cash-Flow Business Taxation Revisited: Bankruptcy, Risk Aversion and Asymmetric Information (2017)
Working Paper: Cash-flow Business Taxation Revisited: Bankruptcy, Risk Aversion And Asymmetric Information (2016)
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