Business Tax Policy Under Default Risk
20 Pages Posted: 25 Jul 2019
Date Written: 2019
In this article we use a stochastic model with one representative firm to study business tax policy under default risk. We will show that, for a given tax rate, the government has an incentive to reduce (increase) financial instability and default costs if its objective function is welfare (tax revenue).
Keywords: capital structure, default risk, business taxation and welfare
JEL Classification: H250, G330, G380
Suggested Citation: Suggested Citation