Optimal Investment and Financial Strategies under Tax Rate Uncertainty

Alessandro Fedele, Paolo Panteghini and Sergio Vergalli

No 3017, CESifo Working Paper Series from CESifo

Abstract: In this paper we apply a real-option model to study the effects of tax rate uncertainty on a firm's decisions. In doing so, we depart from the relevant literature, which focuses on fully equity-financed investment project. By letting a representative firm borrow optimally, we show that debt finance not only encourages investment activities but can also substantially mitigate the effect of tax rate uncertainty on investment timing.

Keywords: capital levy; corporate taxation; default risk; real options (search for similar items in EconPapers)
JEL-codes: H25 (search for similar items in EconPapers)
Date: 2010
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https://www.cesifo.org/DocDL/cesifo1_wp3017.pdf (application/pdf)

Related works:
Journal Article: Optimal Investment and Financial Strategies under Tax‐Rate Uncertainty (2011)
Journal Article: Optimal Investment and Financial Strategies under Tax-Rate Uncertainty (2011)
Working Paper: Optimal Investment and Financial Strategies under Tax Rate Uncertainty (2010)
Working Paper: Optimal Investment and Financial Strategies under Tax Rate Uncertainty (2010)
Working Paper: Optimal investment and financial strategies under tax rate uncertainty (2009)
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