Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/128420
Authors: 
Panteghini, Paolo
Vergalli, Sergio
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper 5713
Abstract: 
In this article we focus on a representative firm that can decide when to invest under default risk. On the one hand, this firm can benefit from generous tax depreciation allowances, on the other hand it faces a default risk. Our aim is to study the effects of tax depreciation allowances in a risky environment. As will be shown in our numerical analysis, generous tax depreciation allowances lead to a decrease in a firm’s leverage and, in most cases, cause a reduction in default risk. This result has a strong policy implication, in that it shows that an investment stimulus pack is expected neither to increase the default risk nor to cause financial instability.
Subjects: 
capital structure
contingent claims
corporate taxation and hybrid securities
JEL: 
H20
Document Type: 
Working Paper

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