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Profit Taxes and Financing Constraints

Christian Keuschnigg & Evelyn Ribi

abstract Without financing frictions, profit taxes reduce investment by their effect on the
user cost of capital. With financing constraints, investment becomes sensitive to
cash-flow. In this situation, even small taxes impose first order welfare losses, and
ACE and cash-flow tax systems are no longer neutral. When banks become active
and provide monitoring services in addition to finance, an ACE tax yields larger
investment and welfare than an equal yield cash-flow tax.
   
type journal paper
   
keywords Financing constraints, cash-flow tax, ACE tax
   
language English
kind of paper journal article
date of appearance 8-2012
journal International Tax and Public Finance
publisher Springer Science (New York)
ISSN 0927-5940
ISSN (online) 1573-6970
DOI 10.1007/s10797-012-9247-7
volume of journal 2013
number of issue online only!
page(s) 1-19
review double-blind review
   
profile area SEPS - Economic Policy
citation Keuschnigg, C., & Ribi, E. (2012). Profit Taxes and Financing Constraints. International Tax and Public Finance, 2013(online only!), 1-19, DOI:10.1007/s10797-012-9247-7.