Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/22747
Authors: 
Wahl, Jack E.
Broll, Udo
Year of Publication: 
2007
Series/Report no.: 
Dresden discussion paper in economics 06/07
Abstract: 
Using a two-moment decision model this paper analyzes corporate hedging behavior in the presence of unified and differential income taxation. We start with the well-known result that risk-taking may increase when income tax rates increase and, therefore, the incentive for hedging reduces. We demonstrate that pure hedging is differently affected by taxation than speculative hedging is. Analysing tax-sensitivity of the corporate hedge shows that a higher risk in the first place may reduce the tax-induced incentive to revise a futures position.
Subjects: 
taxation
hedging
mean-variance model
unified and differential taxation
Roy preference function
JEL: 
F31
F21
H20
Document Type: 
Working Paper

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