Firm Investment, Corporate Finance, and Taxation

Topics:
Taxes
Tags:
Capital Market,
Taxation,
Investment,
IMF,
Free Trade,
Financing,
Financial Services,
Financial Planning,
Financial Accounting,
Finance,
...
Source:
International Monetary Fund

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Overview: This paper examines the intertemporal effect of corporate income taxation on the investment behavior of a firm that faces imperfect capital markets. It shows that when capital markets are imperfect, the optimizing firm goes through different phases of growth. In this dynamic setting, the effect of a corporate tax on profits varies over time. An increase in the corporate profit tax rate initially reduces investment, but the effect is reversed over time as the firm adjusts its financing policy to the new tax rate.

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Format: PDF | Size: 1,546KB | Date: Dec 2002 | Pages: 46

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