Willingness to Invest and Time Indifference Under Uncertainty and Taxes

Arqus Quantitative Tax Research Discussion Paper No. 2

39 Pages Posted: 20 Jun 2006

See all articles by Caren Sureth-Sloane

Caren Sureth-Sloane

Paderborn University; Vienna University of Economics and Business; TRR 266 Accounting for Transparency

Armin Voß

University of Paderborn - Faculty of Business Administration, Economics and Business Computing

Date Written: March 2005

Abstract

We analyze the impact of taxation on the option to defer an investment decision and derive tax rates that do not influence the extent of postponement. Furthermore, we deduce from this option pricing framework a measure of an investor's disposition towards realizing an investment project under risk aversion. We show that capital gains taxation often reduces this disposition, whereas asymmetric tax treatment of profits and losses may compensate this effect at least partially. On this basis, we identify indifferent curves that describe tax schedules providing constant disposition to invest. These curves enable a comparison of different tax rules and their impact on investment decisions without explicitly referring to the after-tax value of an investment project. Thereby, the decision-making process is simplified. Our results provide important information for asset pricing that is useful in merger and acquisition processes, especially for determining the value of a firm. We highlight overwhelming importance of integrating taxes in typically applied valuation approaches.

Note: Downloadable document is in German.

Keywords: asymmetrische Besteuerung, Veräußerungsgewinnsteuer, Investitionsentscheidungen, Riskoaversion, Unsicherheit

JEL Classification: H25, G31

Suggested Citation

Sureth-Sloane, Caren and Voß, Armin, Willingness to Invest and Time Indifference Under Uncertainty and Taxes (March 2005). Arqus Quantitative Tax Research Discussion Paper No. 2 , Available at SSRN: https://ssrn.com/abstract=905760 or http://dx.doi.org/10.2139/ssrn.905760

Caren Sureth-Sloane (Contact Author)

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098
Germany

Armin Voß

University of Paderborn - Faculty of Business Administration, Economics and Business Computing ( email )

Warburger Str. 100
D-33098 Paderborn
Germany

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