Gries, Thomas
[Verfasser:in]
;
Prior, Ulrich
[Sonstige Person, Familie und Körperschaft];
Sureth-Sloane, Caren
[Sonstige Person, Familie und Körperschaft]
Taxation of Risky Investment and Paradoxical Investor Behavior
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments April 2007 erstellt
Beschreibung:
Under uncertainty and irreversibly, real option-based models are widely accepted for assessing investment projects. So far the existing post-tax analyzes do not provide a general analytical description of investor reactions towards profit tax rate changes. This paper sets out to fill part of the void. We implement a simple tax system and focus on risky capital market investment and an option to wait. Taxes affect risk-free and risky capital market investment asymmetrically and hence cause distortions. We analytically identify a set of neutral tax rates (tax regimes) that preserve the critical post-tax investment threshold in case of tax rate changes as well as general normal and paradoxical settings. Unlike for other tax paradox neither depreciation rules nor loss offset restrictions are responsible for the observed paradoxical reaction. Identifying normal and paradoxical tax regimes can be regarded as a first step to a generalized description of tax effects under uncertainty, both for individual project evaluation as well as for understanding tax effects on an aggregate level