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The Impact of Differential Capital Income Taxation on the Value of Risky Projects

Author

Listed:
  • Rainer Niemann

    (University of Graz)

  • Caren Sureth

    (University of Paderborn)

Abstract

We analyze the impact of differential capital income taxation on the value of risky investment under irreversibility. Under a uniform tax rate, raising the tax rate can either increase or reduce the value of a risky project. Many countries have introduced a separate flat tax on capital income. In contrast to uniform taxation, differential capital income taxation crowds out risky real investment. This dysfunctional effect can neither be corrected by generous depreciation schedules nor by increasing the flat tax rate. This tax discrimination of risky real investment might have contributed to the current crisis.

Suggested Citation

  • Rainer Niemann & Caren Sureth, 2011. "The Impact of Differential Capital Income Taxation on the Value of Risky Projects," Economics Bulletin, AccessEcon, vol. 31(2), pages 1047-1054.
    • Handle: RePEc:ebl:ecbull:eb-10-00787
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Fahr, René & Janssen, Elmar & Sureth, Caren, 2014. "Can tax rate increases foster investment under entry and exit flexibility? Insights from an economic experiment," arqus Discussion Papers in Quantitative Tax Research 166, arqus - Arbeitskreis Quantitative Steuerlehre.
    2. Meißner, Fabian & Schneider, Georg & Sureth, Caren, 2013. "The impact of corporate taxes and flexibility on entrepreneurial decisions with moral hazard and simultaneous firm and personal level taxation," arqus Discussion Papers in Quantitative Tax Research 141, arqus - Arbeitskreis Quantitative Steuerlehre.
    3. Jan Vlachý, 2017. "Analýza daňových systémů středoevropských zemí pomocí statistické simulace [An Analysis of Central European Tax Systems Using Statistical Simulation]," Politická ekonomie, Prague University of Economics and Business, vol. 2017(4), pages 410-423.

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    More about this item

    Keywords

    Capital Income Taxation; Flat tax; Risk-taking; Investment decisions; Uncertainty;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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