Cash-flow business taxation revisited: bankruptcy and asymmetric information
Tóm tắt
We study the effects of cash-flow taxation on firms’ entry and investment decisions when there is bankruptcy risk and when banks face asymmetric information problems in financing heterogeneous firms. When there is moral hazard, firms under-invest, while with adverse selection too many firms enter. Cash-flow taxation applying to both real and financial cash flows corrects these distortions by inducing more investment in rent-generating projects where moral hazard exists and reducing firm entry under adverse selection. Our results in the moral hazard case depend on the tax losses of bankrupt firms accruing to the banks. If bankrupt firms retain tax losses, the cash-flow corporate tax is neutral as in Bond and Devereux (J Public Econ 87:1291–1311, 2003).
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