Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/208464 
Authors: 
Year of Publication: 
2006
Series/Report no.: 
Working paper No. 2-2003
Publisher: 
Copenhagen Business School (CBS), Department of Economics, Frederiksberg
Abstract: 
Lund (2002a) showed in a CAPM-type model how tax depreciation schedules affect required expected returns after taxes. Even without leverage higher tax rates implied lower betas when tax deductions were risk free. Here they are risky, and marginal investment is taxed together with inframarginal in an analytical model of decreasing returns. With imperfect loss offset tax claims are analogous to call options. The beta of equity is still decreasing in the tax rate, but increasing in the underlying volatility. The results are important if market data are used to infer required expected returns, and in discussions of tax design.
Subjects: 
Corporate tax
depreciation
imperfect loss offset
decreasing returns
cost of capital
uncertainty
JEL: 
F23
G31
H25
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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