Firm Investment, Corporate Finance, and Taxation
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Summary:
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.
Series:
Working Paper No. 2002/237
Subject:
Capital accumulation Corporate income tax Financial institutions Financial services Investment policy Market interest rates National accounts Stocks Taxes
English
Publication Date:
December 1, 2002
ISBN/ISSN:
9781451875720/1018-5941
Stock No:
WPIEA2372002
Pages:
45
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