|Langenmayr, Dominika; Lester, Rebecca (20. June 2014): Taxation and Corporate Risk-Taking. Discussion Papers in Economics 2014-28|
We study whether the corporate tax system provides incentives for risky firm investment. We first model the effects of corporate tax rates and tax loss offset rules on firm risk-taking. Testing the theoretical predictions, we find that firm risk-taking is positively related to the length of tax loss periods. This result occurs because the loss rules shift a portion of investment risk to the government, inducing firms to increase their overall level of risk-taking. Moreover, the corporate tax rate has a positive effect on risk-taking for firms that can expect to use their tax losses, and a negative effect for those that cannot. Thus, the effect of taxes on risky investment decisions varies among firms, and its sign hinges on firm-specific expectations of future tax loss recovery.
|Item Type:||Paper (Discussion Paper)|
|Keywords:||Corporate taxation, firm risk-taking, net operating losses|
Economics > Munich Discussion Papers in Economics
|Subjects:||300 Social sciences > 330 Economics|
|JEL Classification:||H25, H32, G32|
|Deposited On:||23. Jun 2014 10:59|
|Last Modified:||02. May 2016 07:06|
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