A Welfare Analysis on Start-Up Decisions under Default Risk

This short article studies the tax effects on a start-up investment decision under uncertainty. Since the representative firm can decide both when to invest and how much to borrow, the distortive effects are twofold. We thus show that the deadweight loss (namely, the ratio between the welfare loss and tax revenue) ranges from 25 to 32%, whereas mature firms face a lower distortion (as shown by Comincioli et al. (2021) the maximum deadweight loss is about 25%).

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Year of publication:	2021
Authors:	Comincioli, Nicola ; Panteghini, Paolo ; Vergalli, Sergio
Publisher:	Munich : Center for Economic Studies and ifo Institute (CESifo)
Subject:	real options \| business taxation \| default risk

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Series:	CESifo Working Paper ; 9478
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	1782358366 [GVK] hdl:10419/249023 [Handle] RePec:ces:ceswps:_9478 [RePEc]
Classification:	H25 - Business Taxes and Subsidies ; G33 - Bankruptcy; Liquidation ; G38 - Government Policy and Regulation
Source:	EconStor

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