Abstract:

Theoretical work has emphasised the potentially powerful impact of corporation tax asymmetries on investment behaviour, but empirical work has mainly been confined to the measurement of effective tax rates. This paper uses panel data from 597 U.K. companies to ask: Are tax asymmetries important to understanding observed investment behaviour? An optimising investment model is developed and estimated both as a Q equation and a Euler equation in which the cost of capital appears. Careful modelli...

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