EconPapers    
Economics at your fingertips  
 

Cash-flow Business Taxation Revisited: Bankruptcy, Risk Aversion And Asymmetric Information

Robin Boadway (), Jean-François Tremblay () and Motohiro Sato
Additional contact information
Motohiro Sato: Hitotsubashi University

No 1372, Working Paper from Economics Department, Queen's University

Abstract: 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 risk-neutral and there are no distortions. 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. We characterize the nature of such distortions and show that cash-flow taxes can increase social welfare in this context. An ACE tax is equivalent to a cash-flow tax but is easier to implement under asymmetric information.

Keywords: asymmetric information; cash-flow tax; risk-averse firms (search for similar items in EconPapers)
JEL-codes: H21 H25 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2016-12
New Economics Papers: this item is included in nep-acc
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1372.pdf First version 2016 (application/pdf)

Related works:
Working Paper: Cash-Flow Business Taxation Revisited: Bankruptcy, Risk Aversion and Asymmetric Information (2017) Downloads
Working Paper: Cash-flow business taxation revisited: bankruptcy, risk aversion and asymmetric information (2015) Downloads
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:qed:wpaper:1372

Access Statistics for this paper

More papers in Working Paper from Economics Department, Queen's University Contact information at EDIRC.
Bibliographic data for series maintained by Mark Babcock ().

 
Page updated 2021-12-07
Handle: RePEc:qed:wpaper:1372