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Investment Under Tax Policy Uncertainty: A Neoclassical Approach

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  • Alaa El-Shazly

    (Department of Economics, Faculty of Economics and Political Science, Cairo University, Cairo, Egypt, ashazly@cics.feps.eun.eg)

Abstract

This article studies the impact of investment irreversibility, delivery lags, and adjustment costs on the firm’s optimal investment policy in a world of uncertainty. The source of uncertainty is a future change in the corporate profits tax where both the timing of this event and the size of associated adjustment in the tax benefit of investing are random. Such a tax uncertainty is particularly evident in reform economies whose authorities consider significant reductions in the corporate tax rate to stimulate business life. It is shown that greater transparency on tax policy promotes the firm’s expected net worth and the capital accumulation process.

Suggested Citation

  • Alaa El-Shazly, 2009. "Investment Under Tax Policy Uncertainty: A Neoclassical Approach," Public Finance Review, , vol. 37(6), pages 732-749, November.
    • Handle: RePEc:sae:pubfin:v:37:y:2009:i:6:p:732-749
    DOI: 10.1177/1091142109351565
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    References listed on IDEAS

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    Cited by:

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    2. José Alves, 2018. "A DSGE Model to Evaluate the Macroeconomic Impacts of Taxation," Working Papers REM 2018/62, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    3. Richard Cebula, 2012. "Contemporary Economics and Policy Issues in the U.S," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 18(2), pages 131-137, May.

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