Open AccessInvestment In An Unstable Tax Environment
Author(s) -
Sam N. Basu,
Franklin Lowenthal,
Christopher W. K. Lubwama
Publication year - 2011
Publication title -
journal of business and economics research
Language(s) - English
Resource type - Journals
eISSN - 2157-8893
pISSN - 1542-4448
DOI - 10.19030/jber.v5i12.2611
Subject(s) - corporate tax , tax rate , monetary economics , economics , jurisdiction , capital (architecture) , tax credit , tax reform , public economics , investment (military) , business , tax avoidance , political science , law , archaeology , politics , history
While most of the capital budgeting situations are typically micro level problems, the introduction of this dual impact of the corporate tax rate on the project acceptance criterion provides an insight into potential tax regime decisions on long term investments in a given tax jurisdiction. If we understand this dual behavior well enough, it might be possible for a tax regime to manipulate its corporate tax rate without necessarily jeopardizing acceptability status of capital projects to providers of capital. The present paper is an attempt to model this dual impact of the corporate tax rate on the NPV of projects within the tax regime, and study the implications of the results for policy makers and for corporations facing such policy makers.