Optimal timing and capacity choice with taxes and subsidies under uncertainty

• Type: Article in International Scientific Journal
• Date: 2021

Authors

Azevedo, A (Author) Other; Pereira, Paulo Jorge (Author) FEP; Rodrigues, Artur (Author) FEP

Journal

Title: Omega

Vol. 102

ISSN: 0305-0483

Publisher: Elsevier

Indexing

ISI Web of Knowledge - 25 Citations

ISI Web of Science

Scopus - 25 Citations

Other information

Authenticus ID: P-00S-JD4

DOI: 10.1016/j.omega.2020.102312

Abstract (EN): We develop a real options model that examines the effect of government?s subsidies and taxation policy on the timing and size of investments. We find that a higher depreciation rate or subsidy, or a lower tax rate, accelerates investments. The effect of subsidies on the investment size depends on whether the subsidy is fixed or variable: a fixed subsidy induces smaller size investments, whereas a variable subsidy encourages larger size investments. The tax and depreciation rates do not affect the size of the investment. For revenue-neutral incentive packages, the effect of changes in the above variables on the investment timing and size is not necessarily monotonic and it depends on the instrument of the taxsubsidy policy that is used to keep the new policy revenue neutral. There are also economic contexts in which an increase in the tax rate can accelerate investments of a larger scale. @& nbsp;2020 Elsevier Ltd. All rights reserved.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 12