Investment with Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?

@inproceedings{Hassett1994InvestmentWU,
  title={Investment with Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?},
  author={Kevin Allen Hassett and Gilbert Elliott Metcalf},
  year={1994}
}
In models with irreversible investment, increasing uncertainty about prices has been shown to increase the required rate of return (hurdle rate) and delay investment (e.g., Pindyck, 1988). One serious form of uncertainty faced by firms, a form that policy makers could conceivably control, is tax uncertainty. In this paper, we show that it does not follow from past work that tax policy uncertainty increases the expected hurdle price ratio and delays investment. This is because tax uncertainty… CONTINUE READING
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