Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/104433
Authors: 
Langenmayr, Dominika
Lester, Rebecca
Year of Publication: 
2014
Series/Report no.: 
Munich Discussion Paper 2014-28
Abstract: 
We study whether the corporate tax system provides incentives for risky firm investment. We first model the effects of corporate tax rates and tax loss offset rules on firm risk-taking. Testing the theoretical predictions, we find that firm risk-taking is positively related to the length of tax loss periods. This result occurs because the loss rules shift a portion of investment risk to the government, inducing firms to increase their overall level of risk-taking. Moreover, the corporate tax rate has a positive effect on risk-taking for firms that can expect to use their tax losses, and a negative effect for those that cannot. Thus, the effect of taxes on risky investment decisions varies among firms, and its sign hinges on firm-specific expectations of future tax loss recovery.
Subjects: 
Corporate taxation
firm risk-taking
net operating losses
JEL: 
H25
H32
G32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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