Wide vs. Narrow Tax Bases Under Optimal Investment Timing

20 Pages Posted: 23 Aug 2004

See all articles by Paolo M. Panteghini

Paolo M. Panteghini

Department of Economics and Management; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: July 2004

Abstract

This article compares an ACE system with a CBIT system in an open economy. Using a real-option approach we show that, if a firm can decide when to invest, a tradeoff is found. According to traditional wisdom, a high-income firm investing in an ACE system faces a heavier tax burden at each instant. On the other hand, it finds it optimal to invest earlier, thereby enjoying a longer stream of income. If, given the same tax burden, the latter effect is great enough, the firm will prefer the ACE system. In this article we also run a simulation which shows that preference for an ACE system is a realistic result.

Keywords: corporate taxation, open economy, timing and real options

JEL Classification: H25, H32

Suggested Citation

Panteghini, Paolo M., Wide vs. Narrow Tax Bases Under Optimal Investment Timing (July 2004). Available at SSRN: https://ssrn.com/abstract=580581

Paolo M. Panteghini (Contact Author)

Department of Economics and Management ( email )

Contrada Santa Chiara 50
BRESCIA, BS 25122
Italy

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

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