Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/311876 
Year of Publication: 
2022
Citation: 
[Journal:] International Tax and Public Finance [ISSN:] 1573-6970 [Volume:] 30 [Issue:] 5 [Publisher:] Springer US [Place:] New York, NY [Year:] 2022 [Pages:] 1331-1345
Publisher: 
Springer US, New York, NY
Abstract: 
Previous work has shown that nonlinear taxation can affect the willingness to undertake risky investments. We show that similar results can arise if agents are uncertain regarding future tax rates. Uncertain taxes distort investment decisions when tax rates are correlated with marginal productivity. We demonstrate this result in a simple theoretical framework, which can also explain some well-known results on the effects of tax progressivity and tax asymmetry on investment. Time-series estimates for the post-WW2 era suggest a negative correlation between effective tax rates and total factor productivity in the USA, yielding an effect on firm investment equivalent to an investment subsidy of around 1 percent. Our results have wide-ranging implications for a variety of tax-related work, including effective tax rates, optimal audit policy, and principal-agent problems between investors and managers.
Subjects: 
Policy uncertainty
Investment
Tax asymmetry
Tax progressivity
Taxation asinsurance
Audit policy
Effective tax rate
JEL: 
H21
H25
H26
H30
H31
H32
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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