Tax, Stimuli of Investment and Firm Value
4 Pages Posted: 12 Jan 2011
Pennings (2000, European Economic Review, 44, pp. 38391) has shown that the government can speed up investment by subsidizing the potential investing firm's entry cost while taxing the future proceeds from the investment, so as to render the net expected value of its subsidy program zero. This note argues that while speeding up investment, this subsidy-tax program also lowers the value of the firm and therefore will be rejected by it.
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