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Article: Progressive taxation and the intensity and timing of investment

TitleProgressive taxation and the intensity and timing of investment
Authors
KeywordsInvestment Intensity
Investment Timing
Progressive Taxation
Real Options
Issue Date2011
PublisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/ecmod
Citation
Economic Modelling, 2011, v. 28 n. 1-2, p. 100-108 How to Cite?
AbstractThis paper examines the effect of progressive taxation on a firm's investment intensity and timing decisions using a real options approach. The firm possesses a perpetual option to invest in a project at any instant by incurring an irreversible investment cost at that time. The amount of the irreversible investment cost determines the intensity of investment that augments the value of the project. Tax progression is specified in a particular case of a constant marginal tax rate with an exogenously given tax exemption threshold that makes the average tax rate increase with the tax base. We show that the firm's investment decisions are neutral to tax progression only when the exogenously given tax exemption threshold is sufficiently large. When tax neutrality does not hold, we show that progressive taxation has a perverse effect on investment intensity. Finally, we show that progressive taxation induces the firm to invest earlier as compared to the case under proportional taxation (i.e., in the absence of any tax exemption). © 2010 Elsevier B.V.
Persistent Identifierhttp://hdl.handle.net/10722/177784
ISSN
2015 Impact Factor: 0.997
2015 SCImago Journal Rankings: 0.815
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorWong, KPen_US
dc.date.accessioned2012-12-19T09:39:53Z-
dc.date.available2012-12-19T09:39:53Z-
dc.date.issued2011en_US
dc.identifier.citationEconomic Modelling, 2011, v. 28 n. 1-2, p. 100-108en_US
dc.identifier.issn0264-9993en_US
dc.identifier.urihttp://hdl.handle.net/10722/177784-
dc.description.abstractThis paper examines the effect of progressive taxation on a firm's investment intensity and timing decisions using a real options approach. The firm possesses a perpetual option to invest in a project at any instant by incurring an irreversible investment cost at that time. The amount of the irreversible investment cost determines the intensity of investment that augments the value of the project. Tax progression is specified in a particular case of a constant marginal tax rate with an exogenously given tax exemption threshold that makes the average tax rate increase with the tax base. We show that the firm's investment decisions are neutral to tax progression only when the exogenously given tax exemption threshold is sufficiently large. When tax neutrality does not hold, we show that progressive taxation has a perverse effect on investment intensity. Finally, we show that progressive taxation induces the firm to invest earlier as compared to the case under proportional taxation (i.e., in the absence of any tax exemption). © 2010 Elsevier B.V.en_US
dc.languageengen_US
dc.publisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/ecmoden_US
dc.relation.ispartofEconomic Modellingen_US
dc.subjectInvestment Intensityen_US
dc.subjectInvestment Timingen_US
dc.subjectProgressive Taxationen_US
dc.subjectReal Optionsen_US
dc.titleProgressive taxation and the intensity and timing of investmenten_US
dc.typeArticleen_US
dc.identifier.emailWong, KP: kpwongc@hkucc.hku.hken_US
dc.identifier.authorityWong, KP=rp01112en_US
dc.description.naturelink_to_subscribed_fulltexten_US
dc.identifier.doi10.1016/j.econmod.2010.09.020en_US
dc.identifier.scopuseid_2-s2.0-78650243694en_US
dc.identifier.hkuros183891-
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-78650243694&selection=ref&src=s&origin=recordpageen_US
dc.identifier.volume28en_US
dc.identifier.issue1-2en_US
dc.identifier.spage100en_US
dc.identifier.epage108en_US
dc.identifier.isiWOS:000286688900012-
dc.publisher.placeNetherlandsen_US
dc.identifier.scopusauthoridWong, KP=7404759417en_US
dc.identifier.citeulike8230437-

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