Wide vs. Narrow Tax Bases under Optimal Investment Timing

Paolo Panteghini

No 1246, CESifo Working Paper Series from CESifo

Abstract: This article compares an ACE system with a CBIT system in an open economy. Using a real-option approach we show that, if a firm can decide when to invest, a tradeoff is found. According to traditional wisdom, a high-income firm investing in an ACE system faces a heavier tax burden at each instant. On the other hand, it finds it optimal to invest earlier, thereby enjoying a longer stream of income. If, given the same tax burden, the latter effect is great enough, the firm will prefer the ACE system. In this article we also run a simulation which shows that preference for an ACE system is a realistic result.

Keywords: corporate taxation; open economy; timing and real options. (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-acc and nep-pbe
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1246

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