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Tax Rate Uncertainty, Investment Decisions, and Tax Neutrality

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  • Rainer Niemann

Abstract

This article deals with the effects of tax rate uncertainty (TRU) on individual investment behavior. We show that under risk neutrality as well as under risk aversion, increased TRU has an ambiguous impact on investment, depending on the investment project's structure of cash flows and depreciation deductions. Although the investment effects are small the popular view that tax policy uncertainty depresses real investment is rejected. Further, tax neutrality in the light of tax policy uncertainty is defined more precisely. Neutrality results for the Johansson-Samuelson tax and the cash flow tax that are known from certainty are confirmed under TRU.

Suggested Citation

  • Rainer Niemann, 2004. "Tax Rate Uncertainty, Investment Decisions, and Tax Neutrality," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(3), pages 265-281, May.
    • Handle: RePEc:kap:itaxpf:v:11:y:2004:i:3:p:265-281
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    Citations

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    Cited by:

    1. Francesco Menoncin & Paolo M. Panteghini, 2013. "The Johansson-Samuelson Theorem in General Equilibrium: A Rebuttal," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 69(1), pages 57-71, March.
    2. Rainer Niemann & Caren Sureth-Sloane, 2016. "Does Capital Tax Uncertainty Delay Irreversible Risky Investment?," CESifo Working Paper Series 6046, CESifo.
    3. Rainer Niemann & Mariana Sailer, 2023. "Is analytical tax research alive and kicking? Insights from 2000 until 2022," Journal of Business Economics, Springer, vol. 93(6), pages 1149-1212, August.
    4. Hines Jr., James R. & Keen, Michael J., 2021. "Certain effects of random taxes," Journal of Public Economics, Elsevier, vol. 203(C).
    5. Schanz, Sebastian, 2007. "Optimale Repatriierungspolitik: Auswirkungen von Tarifänderungen auf Repatriierungsentscheidungen bei Direktinvestitionen in Deutschland und Österreich," arqus Discussion Papers in Quantitative Tax Research 23, arqus - Arbeitskreis Quantitative Steuerlehre.
    6. Alessandro Fedele & Paolo M. Panteghini & Sergio Vergalli, 2011. "Optimal Investment and Financial Strategies under Tax‐Rate Uncertainty," German Economic Review, Verein für Socialpolitik, vol. 12(4), pages 438-468, November.
    7. Chen, An & Hieber, Peter & Sureth, Caren, 2022. "Pay for tax certainty? Advance tax rulings for risky investment under multi-dimensional tax uncertainty," arqus Discussion Papers in Quantitative Tax Research 273, arqus - Arbeitskreis Quantitative Steuerlehre.
    8. Dirk Simons & Dennis Voeller & Martina Corsten, 2012. "Erbschaftsteuerliche Verschonungsregeln Für das Betriebsvermögen — Ein Theoretischer Ansatz zur Steuerplanung," Schmalenbach Journal of Business Research, Springer, vol. 64(1), pages 2-36, February.
    9. Ortmann, Regina, 2015. "Uncertainty in weighting formulary apportionment factors and its impact on after-tax income of multinational groups," arqus Discussion Papers in Quantitative Tax Research 184, arqus - Arbeitskreis Quantitative Steuerlehre.
    10. Luis H. R. Alvarez & Erkki Koskela, 2005. "Progressive Taxation and Irreversible Investment under Uncertainty," CESifo Working Paper Series 1377, CESifo.
    11. Jan Vlachý, 2015. "Measuring the Effective Tax Burden of Lifetime Personal Income," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2015(3), pages 5-14.
    12. Deborah Knirsch, 2007. "Measuring tax distortions with neutrality-based effective tax rates," Review of Managerial Science, Springer, vol. 1(2), pages 151-165, August.
    13. Deborah Knirsch & Rainer Niemann, 2008. "Deferred Shareholder Taxation -- Implementing a Neutral Business Tax in the European Union," Accounting in Europe, Taylor & Francis Journals, vol. 5(2), pages 101-125, December.
    14. Harald Jansen, 2008. "Asymmetrische Besteuerung unter Ausschüttungsbeschränkungen," FEMM Working Papers 08030, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    15. Rainer Niemann, 2007. "The Impact of Tax Uncertainty on Irreversible Investment," CESifo Working Paper Series 2075, CESifo.
    16. Niemann, Rainer & Sureth, Caren, 2016. "Does capital tax uncertainty delay irreversible risky investment?," arqus Discussion Papers in Quantitative Tax Research 209, arqus - Arbeitskreis Quantitative Steuerlehre.
    17. Deborah Knirsch, 2007. "Lohnt sich eine detaillierte Steuerplanung für Unternehmen?," Schmalenbach Journal of Business Research, Springer, vol. 59(4), pages 487-507, June.
    18. Niemann, Rainer, 2006. "The impact of tax uncertainty on irreversible investment," arqus Discussion Papers in Quantitative Tax Research 21, arqus - Arbeitskreis Quantitative Steuerlehre.
    19. Deborah Knirsch, 2006. "Is a Detailed Tax Planning for Investment Decisions Worthwhile? Evidence From Germany," EcoMod2006 272100044, EcoMod.
    20. Niemann, Rainer & Sureth, Caren, 2009. "Investment effects of capital gains taxation under simultaneous investment and abandonment flexibility," arqus Discussion Papers in Quantitative Tax Research 77, arqus - Arbeitskreis Quantitative Steuerlehre.
    21. Igor Kotlán & Daniel Němec & Zuzana Machová, 2019. "Právní nejistota v daňové oblasti a její dopady na nabídku práce v České republice [Legal Uncertainty in Taxation and Its Impacts on Labour Supply in the Czech Republic]," Politická ekonomie, Prague University of Economics and Business, vol. 2019(4), pages 371-384.
    22. James R. Hines Jr. & Michael Keen, 2018. "Certain Effects of Uncertain Taxes," NBER Working Papers 25388, National Bureau of Economic Research, Inc.
    23. Zuzana Machová & Igor Kotlán, 2015. "Právní jistota - možný problém daňové politiky vyspělých zemí? [Legal Certainty - Possible Problem of Tax Policy in Developed Countries?]," Politická ekonomie, Prague University of Economics and Business, vol. 2015(7), pages 833-846.

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