Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/38888 
Year of Publication: 
2010
Series/Report no.: 
CESifo Working Paper No. 3017
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
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.
Subjects: 
capital levy
corporate taxation
default risk
real options
JEL: 
H25
Document Type: 
Working Paper
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