Optimal Investment and Financial Strategies under Tax Rate Uncertainty

Alessandro Fedele, Paolo Panteghini and Sergio Vergalli

No 2010.68, Working Papers from Fondazione Eni Enrico Mattei

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 projects. 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: H2 (search for similar items in EconPapers)
Date: 2010-06
New Economics Papers: this item is included in nep-acc and nep-ppm
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Citations: View citations in EconPapers (4)

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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)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2010.68

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