Fedele, Alessandro Panteghini, Paolo M. Vergalli, Sergio
Year of Publication:
CESifo working paper Public Finance 3017
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.
capital levy corporate taxation default risk real options