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Progressive tax and responsiveness to changes in investment projects: no loss offset

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  • Junwook Yoo

    (Sungkyunkwan University)

Abstract

This study shows the comprehensive impact of tax progressiveness on investment. First, tax progressiveness makes an entrepreneur less responsive to changes in investment projects. When a tax becomes less (more) progressive, an entrepreneur becomes more (less) responsive to changes in the profitability and riskiness of investment projects. Second, tax asymmetries of progressive taxes and proportional taxes have opposite effects on the responsiveness of an entrepreneur to changes in investment projects. Confronting a progressive tax burden with no loss offset available, an entrepreneur less sharply adjusts the amount of investment in response to changes in the profitability and riskiness of investment projects while confronting a proportional tax burden with no loss offset available, an entrepreneur more sharply adjusts. The results suggest empirical and policy implications. 1) There exist interaction effects to measure between tax progressiveness and the profitability and riskiness of investment projects. 2) By adjusting tax asymmetries and progressiveness, tax jurisdictions are able to induce investors to be more (less) responsive to changes in investment projects which is to take a more (less) aggressive strategy.

Suggested Citation

  • Junwook Yoo, 2023. "Progressive tax and responsiveness to changes in investment projects: no loss offset," Economics Bulletin, AccessEcon, vol. 43(2), pages 1016-1026.
    • Handle: RePEc:ebl:ecbull:eb-22-00122
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    File URL: http://www.accessecon.com/Pubs/EB/2023/Volume43/EB-23-V43-I2-P83.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    progressive tax; tax asymmetry; loss offset; investment sensitivity;
    All these keywords.

    JEL classification:

    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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