Business Taxation, Corporate Finance and Economic Performance
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versione breve
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This survey of recent research in corporate finance discusses how
business taxes, subsidies as well as a country's institutional
development affect several important decision margins of
heterogeneous firms. We argue that innovative firms, as a result of
agency problems between insiders and outside investors, are most
frequently finance constrained. We discuss how profit taxes reduce
investment of constrained firms by their effect on cash-flow, and of
unconstrained firms by their effect on the user cost of capital.
Moreover, tax reform as well as tax financed R&D subsidies can
enhance aggregate investment, innovation and efficiency by
implicitly redistributing profits towards constrained firms where
capital earns the highest return. We argue that the corporate legal
form improves firms' access to external funds. We then explain the
firms' choice between venture capital and bank financing and discuss
how business taxation can affect venture capital financing on both
the extensive and intensive margins. Finally, we review theory and
evidence on how corporate finance may shape a country's comparative
advantage in innovative industries as well as aggregate labor market
performance when part of firms are finance constrained.
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tipo
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discussion paper (English)
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parole chiave
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Financing constraints, innovation, business taxation, subsidies, entrepreneurial choice
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data di apparenza
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3-5-2010
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pagine
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57
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review
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not review
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citation
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Keuschnigg, C., & Ribi, E. (2010). Business Taxation, Corporate
Finance and Economic Performance.
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