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Title:Optimal Investment and Financial Strategies under Tax Rate Uncertainty PDF Logo
Authors:Fedele, Alessandro
Panteghini, Paolo M.
Vergalli, Sergio
Issue Date:2010
Series/Report no.:CESifo working paper Public Finance 3017
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.
Subjects:capital levy
corporate taxation
default risk
real options
JEL:H25
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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