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Profit taxes and financing constraints

Keuschnigg, Christian ; Ribi, Evelyn

In: International Tax and Public Finance, 2013, vol. 20, no. 5, p. 808-826

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    Title
    • Profit taxes and financing constraints
    Author
    • Keuschnigg, Christian. FGN-HSG, University of St. Gallen, Varnbuelstrasse 19, 9000, St. Gallen, Switzerland
    • Ribi, Evelyn. FGN-HSG, University of St. Gallen, Varnbuelstrasse 19, 9000, St. Gallen, Switzerland
    Document Type
    • Postprint
    Language
    • English
    Published in
    • International Tax and Public Finance, 2013, vol. 20, no. 5, p. 808-826. Springer US; http://www.springer-ny.com
    Other Version
    OAI-PMH Identifier
    • oai:doc.rero.ch:316656
    Summary
    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