[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_311.html
   My bibliography  Save this paper

Optimal Investment Strategies under Demand and Tax Policy Uncertainty

Author

Listed:
  • Hjalmar Boehm
  • Michael Funke
Abstract
In this paper we offer an analysis of the effects of uncertainty about future tax policy on irreversible investment. The main message of the paper is that investment is not much affected by the degreee of tax policy uncertainty. This is true regardless of whether random tax changes are determined endogenously or exogenously. The paper therefore indicates that reducing tax policy uncertainty is probably no magic bullet to increase private investment spending

Suggested Citation

  • Hjalmar Boehm & Michael Funke, 2000. "Optimal Investment Strategies under Demand and Tax Policy Uncertainty," CESifo Working Paper Series 311, CESifo.
    • Handle: RePEc:ces:ceswps:_311
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo_wp311.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Luigi Guiso & Giuseppe Parigi, 1999. "Investment and Demand Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 185-227.
    2. Joshua Aizenman & Nancy Marion, 1995. "Volatility, Investment and Disappointment Aversion," NBER Working Papers 5386, National Bureau of Economic Research, Inc.
    3. Rodrik, Dani, 1991. "Policy uncertainty and private investment in developing countries," Journal of Development Economics, Elsevier, vol. 36(2), pages 229-242, October.
    4. Hassett, Kevin A & Metcalf, Gilbert E, 1999. "Investment with Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?," Economic Journal, Royal Economic Society, vol. 109(457), pages 372-393, July.
    5. Andrew B. Abel & Avinash K. Dixit & Janice B. Eberly & Robert S. Pindyck, "undated". "Options, the Value of Capital, and Investment," Rodney L. White Center for Financial Research Working Papers 15-95, Wharton School Rodney L. White Center for Financial Research.
    6. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    7. Abel, Andrew B & Eberly, Janice C, 1994. "A Unified Model of Investment under Uncertainty," American Economic Review, American Economic Association, vol. 84(5), pages 1369-1384, December.
    8. Pennings, Enrico, 2000. "Taxes and stimuli of investment under uncertainty," European Economic Review, Elsevier, vol. 44(2), pages 383-391, February.
    9. Andrew B. Abel & Janice C. Eberly, 1996. "Optimal Investment with Costly Reversibility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(4), pages 581-593.
    10. Abel, Andrew B. & Eberly, Janice C., 1999. "The effects of irreversibility and uncertainty on capital accumulation," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 339-377, December.
    11. Mackie-Mason, Jeffrey K., 1990. "Some nonlinear tax effects on asset values and investment decisions under uncertainty," Journal of Public Economics, Elsevier, vol. 42(3), pages 301-327, August.
    12. Ghosal, Vivek & Loungani, Prakash, 1996. "Product Market Competition and the Impact of Price Uncertainty on Investment: Some Evidence from US Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 217-228, June.
    13. Luis H. R. Alvarez & Vesa Kanniainen, 1997. "Valuation of Irreversible Entry Options under Uncertainty and Taxation," CESifo Working Paper Series 144, CESifo.
    14. Rosanne Altshuler & Harry Grubert & T. Scott Newlon, 2000. "Has U.S. Investment Abroad Become More Sensitive to Tax Rates?," NBER Chapters, in: International Taxation and Multinational Activity, pages 9-38, National Bureau of Economic Research, Inc.
    15. Hugo A. Hopenhayn & Maria E. Muniagurría, 1993. "Policy variability and economic growth," Economics Working Papers 30, Department of Economics and Business, Universitat Pompeu Fabra.
    16. James R. Hines & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 149-182.
    17. Andrew B. Abel & Avinash K. Dixit & Janice C. Eberly & Robert S. Pindyck, 1996. "Options, the Value of Capital, and Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 753-777.
    18. Hines, James R. Jr., 1999. "Lessons From Behavioral Responses to International Taxation," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 305-322, June.
    19. Caballero, Ricardo J, 1991. "On the Sign of the Investment-Uncertainty Relationship," American Economic Review, American Economic Association, vol. 81(1), pages 279-288, March.
    20. Zeira, Joseph, 1990. "Cost uncertainty and the rate of investment," Journal of Economic Dynamics and Control, Elsevier, vol. 14(1), pages 53-63, February.
    21. Kevin A. Hassett, 1999. "Tax Policy and Investment," Books, American Enterprise Institute, number 53049, September.
    22. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
    23. Douglas G. Steigerwald & Charles Stuart, 1997. "Econometric Estimation Of Foresight: Tax Policy And Investment In The United States," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 32-40, February.
    24. Rainer Niemann, 1999. "Neutral Taxation under Uncertainty - a Real Options Approach," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 56(1), pages 51-66, March.
    25. Hans‐Werner Sinn, 1995. "Staggering along: wages policy and investment support in East Germany," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(4), pages 403-426, December.
    26. Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 305-22, June.
    27. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-233, March.
    28. Alvarez, Luis H. R. & Kanniainen, Vesa & Sodersten, Jan, 1998. "Tax policy uncertainty and corporate investment: A theory of tax-induced investment spurts," Journal of Public Economics, Elsevier, vol. 69(1), pages 17-48, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Paolo M. Panteghini, 2002. "Corporate Tax Asymmetries under Investment Irreversibility," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(3), pages 207-226, July.
    2. Sureth, Caren & Voß, Armin, 2005. "Investitionsbereitschaft und zeitliche Indifferenz bei Realinvestitionen unter Unsicherheit und Steuern," arqus Discussion Papers in Quantitative Tax Research 2, arqus - Arbeitskreis Quantitative Steuerlehre.
    3. 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.
    4. Unal, Umut, 2015. "Capital Income Taxation and Welfare under DSGE Framework," MPRA Paper 68416, University Library of Munich, Germany.
    5. Rainer Niemann, 2007. "The Impact of Tax Uncertainty on Irreversible Investment," CESifo Working Paper Series 2075, CESifo.
    6. Niemann, Rainer, 2006. "The impact of tax uncertainty on irreversible investment," arqus Discussion Papers in Quantitative Tax Research 21, arqus - Arbeitskreis Quantitative Steuerlehre.
    7. Paolo M. Panteghini, 2005. "Asymmetric Taxation under Incremental and Sequential Investment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(5), pages 761-779, December.
    8. repec:ebl:ecbull:v:3:y:2003:i:28:p:1-16 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hjalmar Böhm & Michael Funke & Nikolaus A. Siegfried, 1999. "Discovering the Link between Uncertainty and Investment - Microeconometric Evidence from Germany," Quantitative Macroeconomics Working Papers 19906, Hamburg University, Department of Economics.
    2. Bontempi, Maria Elena & Golinelli, Roberto & Parigi, Giuseppe, 2010. "Why demand uncertainty curbs investment: Evidence from a panel of Italian manufacturing firms," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 218-238, March.
    3. Glover, Brent & Levine, Oliver, 2015. "Uncertainty, investment, and managerial incentives," Journal of Monetary Economics, Elsevier, vol. 69(C), pages 121-137.
    4. Serven, Luis, 1997. "Uncertainty, instability, and irreversible investment : theory, evidence, and lessons for Africa," Policy Research Working Paper Series 1722, The World Bank.
    5. Panteghini Paolo, 2001. "On Corporate Tax Asymmetries and Neutrality," German Economic Review, De Gruyter, vol. 2(3), pages 269-286, August.
    6. Wong, Kit Pong, 2011. "Progressive taxation and the intensity and timing of investment," Economic Modelling, Elsevier, vol. 28(1-2), pages 100-108, January.
    7. Wong, Kit Pong, 2011. "Progressive taxation and the intensity and timing of investment," Economic Modelling, Elsevier, vol. 28(1), pages 100-108.
    8. Nick Bloom & Stephen Bond & John Van Reenen, 2007. "Uncertainty and Investment Dynamics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(2), pages 391-415.
    9. Catherine Fuss & Philip Vermeulen, 2008. "Firms' investment decisions in response to demand and price uncertainty," Applied Economics, Taylor & Francis Journals, vol. 40(18), pages 2337-2351.
    10. Pennings, Enrico, 2005. "How to maximize domestic benefits from foreign investments: the effect of irreversibility and uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 29(5), pages 873-889, May.
    11. Vasia Panousi & Dimitris Papanikolaou, 2012. "Investment, Idiosyncratic Risk, and Ownership," Journal of Finance, American Finance Association, vol. 67(3), pages 1113-1148, June.
    12. Hanno Dihle, 2015. "Real Options in a Ramsey style Growth Model," Discussion Paper Series 32, Department of International Economic Policy, University of Freiburg, revised Dec 2015.
    13. Paolo M. Panteghini, 2005. "Asymmetric Taxation under Incremental and Sequential Investment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(5), pages 761-779, December.
    14. Sumru Altug & Fanny S. Demers & Michel Demers, 2004. "Tax Policy and Irreversible Investment," CDMA Working Paper Series 200404, Centre for Dynamic Macroeconomic Analysis.
    15. Paul Butzen & Catherine Fuss & Philip Vermeulen, 2002. "The impact of uncertainty on investment plans," Working Paper Research 24, National Bank of Belgium.
    16. Saltari, Enrico & Ticchi, Davide, 2007. "Risk aversion, intertemporal substitution, and the aggregate investment-uncertainty relationship," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 622-648, April.
    17. Henriques, Irene & Sadorsky, Perry, 2011. "The effect of oil price volatility on strategic investment," Energy Economics, Elsevier, vol. 33(1), pages 79-87, January.
    18. Driver, Ciaran & Temple, Paul & Urga, Giovanni, 2008. "Real options -- delay vs. pre-emption: Do industrial characteristics matter?," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 532-545, March.
    19. Gianluca Femminis, 2019. "Risk aversion heterogeneity and the investment–uncertainty relationship," Journal of Economics, Springer, vol. 127(3), pages 223-264, August.
    20. Tomat, Gian Maria, 2008. "Modeling the Effects of Financial Constraints on Firm's Investment," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-26.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_311. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.