A general proposition on the design of a neutral business tax

A simple and general means of levying a business tax that is ‘neutral’ in the sense that it does not affect the firm's decisions at the margin is discussed. In particular, we analyze the effect of a business tax of our design on the investment decision of the firm. The well-known ‘imputed income’ and ‘immediate write-off’ methods of levying a neutral business tax are found to be special cases of our general tax design. The implication of our results is that a neutral ‘pure profits’ tax can be levied without the informational difficulties of the imputed income method or the cash flow disadvantages of the immediate write-off method.     

Tax policy,capital use,and investment incentives

In this paper, we investigate the effect of a corporate income tax on the utilization and maintenance of capital and on the demand for capital stock and services. We find that a tax that allows interest deductions is distortionary unless allowable depreciation depends on the firm's utilization and maintenance decisions. Also, we show that the usual demand equation for capital stock is misspecified if capital utilization is not a technological constant.     

Dividend taxes,corporate investment,and ‘Q’

Taxes on corporate distributions have traditionally been regarded as a ‘double tax’ on corporate income. This view implies that while the total effective tax rate on corporate source income affects real economic decisions, the distribution of this tax burden between the shareholders and the corporation is irrelevant. Recent research has suggested an alternative to this traditional view. One explanation of why firms in the United States pay dividends in spite of the heavy tax liabilities associated with this form of distribution is that the stock market capitalizes the tax payments associated with corporate distributions. This capitalization leaves investors indifferent at the margin between a corporation's decision to pay out dividends or to retain earnings. This alternative view holds that while changes in the dividend tax rate will affect shareholder wealth, they will have no impact on corporate investment decisions.This paper develops econometric tests which distinguish between these two views of dividend taxation. By extending Tobin's ‘q’ theory of investment to incorporate taxes at both the corporate and personal levels, the implications of each view for corporate investment decisions can be derived. The competing views may be tested by comparing the performance of investment equations estimated under each theory's predictions. British time series data are particularly appropriate for testing hypotheses about dividend taxes because of the substantial postwar variation in effective tax rates on corporate distributions. The econometric results suggest that dividend taxes have important effects on investment decisions.     

Increasing returns to scale and the reverse flexible accelerator

We show that the flexible accelerator principle characterizes optimal investment behavior only when the firm's technology exhibits decreasing returns to scale throughout. When there are increasing returns we show that there is a range in which investment increases as the capital stock increases towards its long-run equilibrium level.     

Monopolistic competition,aggregation of competitive information,and the amount of product differentiation

Consider an industry with a large number of homogeneous firms. Each firm's profits are a function of its own strategy and the strategies the other firms select. Suppose other firms' strategies enter into each firm's profit function only through one or more statistics. For example, average price in the market may parameterize every firm's profit function. We prove that, as a general rule, the industry's firms will in equilibrium follow at most M + 1 distinct strategies, where M is the number of statistics by which competitors' strategies affect each firm's profits.     

The socialist labor-managed firm and bank-financed investment: Some theoretical issues

Under a labor-managed system of the Yugoslav type of 1965–1971, the process of capital formation is subject to special difficulties, linked to the structure of property rights. Workers possess neither permanent nor transferable claims on capital assets but are, nevertheless, required by law to maintain the value of the firm's initial capital stock and of any additions to it. The law is intended to protect the nation's capital stock but is ill designed for this purpose. Its immediate effect is to reduce the collective's willingness to undertake bank-financed investment, and thus it promotes inefficient intertemporal allocation.     

The effects of cash flow and size on the investment decisions of ICT firms: A dynamic approach

This paper examines one of the fastest growing industries in our world today, the ICT industry. We assess the sensitivity of a firm’s investment to a set of financial determinants, by developing a flexible adjustment dynamic model. In particular, we examine the degree to which a firm’s liquidity influences firm investment and whether firm size and firm specialization have any additional implications. Moreover, the effect of the dot-com burst is also considered. For a panel of ICT and non-ICT US companies listed on the NASDAQ stock exchange, the results reveal the following: (1) all firms are sensitive to the availability of internal funds; (2) investment intensity decreases with firm size; (3) and leverage negatively affects investment for ICT firms.     

Commodity taxes under uncertainty

This paper considers the relative distorting effect on output of commodity taxes, specific and ad valorem, in a situation where a firm faces revenue uncertainty. It is shown generally that this effect depends both on the precise nature of the firm's revenue uncertainty and on the degree of its risk aversion. More specifically, the distorting effect of each tax is characterised for a selection of objective functions and uncertain environments. These characterisations are compared in order to show the influence of alternative specifications on the relative distorting effect.     

Appropriability rules,capital maintenance,and the efficiency of cooperative investment

It is generally accepted that investment in cooperative firms is discouraged by limitations on individual appropriability of the capital and its returns, and by obligations to maintain the firm's capital. Both disincentives, operating most acutely in Yugoslavia, result in suboptimal investment behavior. This paper argues, however, that most of the disincentive is due to the capital maintenance obligation rather than to limited appropriability. In the absence of the former and as long as workers' time horizon is not inordinately short, disincentives may not significantly interfere with efficient selection of certain types of investment.     

On the theory of the firm under uncertainty and the cost of capital

The interaction between the firm's productive behavior under uncertainty and its cost of capital is shown to affect its optimal output. The source of this interaction is linked to the firm's degree of operating leverage.     

Taxation and the stock market valuation of capital gains and dividends: Theory and emphirical results

Dividends seem to be more heavily taxed than capital gains. Why then do corporations pay dividends rather than repurchasing shares or retaining earnings? Either corporations are not acting in the interests of shareholders, or else shareholders desire dividends sufficiently for nontax reasons to offset the tax effect.In this paper, we measure the relative valuation of dividends and capital gains in the stock market, using a variant of the capital asset pricing model. We find that dividends are not valued differently systematically from capital gains. This finding is consistent with share price maximization by firms but inconsistent with the fact that most shareholderspay a heavier tax on dividends.We also show that the relative value of dividends provides an indirect measure of a marginal Tobin's q. The measured value of dividends relative to capital gains tends to be higher during prosperous periods, as is consistent with this interpretation. We hope that this time series on a marginal Tobin's q will prove to be useful in forecasting the rate of investment.     

Optimal size, optimal timing and optimal financing of an investment

Corporate investment is an important determinant of economic well-being. The existing literature identifies optimal investment size and timing without the possibility of debt financing, as well as the effect of debt financing on investment timing without the option to choose investment size. This paper contributes to the literature by identifying the optimal size, optimal timing and optimal financing for an investment when the firm controls all three decisions (as it usually does in practice). The investment size and investment trigger are generally positively related: when investment is delayed (accelerated) it is larger (smaller) in size, thus the overall effect on investment is ambiguous. However, when tax rate or bankruptcy cost is increased, the trigger rises and size falls, hence the effect on investment is unambiguously negative. The effect of debt financing on investment depends on the amount of debt used; with the optimal amount of debt, investment is delayed relative to the no-debt case, and this delay can be economically significant; however, the investment, when eventually made, will be larger in size. Overall, it is not appropriate to ignore either the firm’s ability to choose investment size or its option to use debt financing, when modeling the investment decision.     

Determinants of capacity utilization by firms in less developed countries

The factors which influenced the capacity utilization decision of two hundred firms in the light manufacturing sector in Thailand during the period 1962–1974 were analyzed. The profit-maximizing capacity utilization rate for each firm was calculated using the projected balance sheets and income statements the firms prepared at the time of their initial investment. This ‘optimal’ rate was roughly twice the rates chosen by the firms. The extent of nonoptimal capacity underutilization of a firm was a function of the nationality of the firm's owner, entry date, number of firms in the industry, projected profits, and the manager's perceived risk of multishift operations.     

Identification of technological threats and opportunities by firms

A number of models and approaches are being developed in attempts to anticipate the nature and direction of technological change and its impact on the firm. Under what conditions might we expect firms to use one or more of these models in an organized way and under what conditions might we expect the resulting information to be used in the firm's planning process? The basic hypothesis of this paper is that effective use by firms of models for anticipating technological change can be explained based upon: the nature and extent of uncertainty in the firm's environment,the firm's strategy for growth, and the degree of definition of communication networks (both formal and informal) within the firm and between the firm and its environment. Technology planners and managers of 29 firms in a variety of industries have been interviewed concerning the ways in which technological threats and opportunities are identified and analyzed and the ways in which this information is integrated into the firm's normal planning cycle. A follow-up questionnaire is being designed to be sent to a larger number of respondents.     

Corporate Expenditure on Environmental Protection

We examine the determinants of firm’s current environmental expenditure and firm’s capital investment in equipment for pollution control in Irish manufacturing industries using a Heckman selection model. The main determinants for the two types of expenditure are similar: larger, exporting and energy-intensive firms are more likely to spend. Being subject to environmental regulation also has an effect. Once the decision to commit resources has been taken, larger, older, foreign-owned, exporting and energy-intensive firms incur higher environmental expenditure. For the amount of capital investment only firm size and age play a role. This suggests that the economic and regulatory incentives in place are such that it is the largest and most polluting firms that do most to reduce pollution.     

Bargaining costs and regulation induced cost distortions

The regulated rate of return of most public utilities exceeds the cost of capital. Also, the regulated utility and its customers present evidence in rate hearings to influence the commission's decision. The negotiation and lobbying activity in turn affects the firm's choice of factors. As the price of additional negotiation rises, the firm is less willing to continue these discussions and instead will rely on other, non-negotiated profit sources such as traditional Averch-Johnson overcapitalization. This hypothesis is empirically supported by a 1970 cross section of 168 steam electric plants.     

环境偏好和环境税视角下企业技术决策博弈分析

构建双寡头垄断市场下企业技术决策的博弈模型,并将消费者环境偏好和环境税引入模型。首先分析消费者的环境偏好对市场需求的影响;然后运用逆向归纳法探讨企业在环境税约束下的两阶段博弈;最后分析消费者环境偏好和环境税对企业技术决策的综合影响。研究表明:消费者的环境偏好降低了双寡头垄断企业的市场需求,激发了企业在没有环境税下采纳绿色技术的动机;当征收环境税时,企业采纳绿色技术的效益与环境税率的关系曲线呈倒U型,消费者的环境偏好与环境税引发的效益区间正比变动。     

Profit taxation and the mode of foreign market entry

Abstract This paper studies the role of profit taxation for an international firm's decision upon how to penetrate a foreign market – through exports or through foreign direct investment (FDI) and local supply. We show that with harmonized taxes the international firm may choose FDI even though this has welfare costs from a global point of view. With tax competition, the host country can enforce exporting instead of FDI. This leads to a Nash equilibrium associated with higher world welfare than harmonized taxes. Thus, because of the effect on entry mode, tax competition provides heretofore unexplored benefits as compared to tax harmonization.     

New venture planning: The role of technological forecasting

A system for the analysis and planning of new ventures is developed which provides a structure for the application of logical, mathematical, and scientific procedures to decision problems which (1) involve a significant portion of an organization's resources, (2) have long term effects on a firm's future success, and (3) are characterized by uncertainty in many of the factors important to the decision. The system is based on a synthesis of various analytical techniques from the fields of technological forecasting, decision analysis, and system dynamics, and provides a general methodology for rank-ordering new venture candidates and determining the resource allocation level required for new venture portfolios designed to achieve long term growth objectives. The role played by technological forecasting in new venture planning and in the selection of engineering projects is discussed.     

Optimal Investment and Financial Strategies under Tax‐Rate Uncertainty

Abstract. In this paper, we apply a real‐option model to study the effects of tax‐rate uncertainty on a firm's decision. In doing so, we depart from the relevant literature, which focuses on fully equity‐financed investment projects. By letting a representative firm borrow optimally, we show that debt finance not only encourages investment activities but can also substantially mitigate the effect of tax‐rate uncertainty on investment timing.