The separation between a firm’s decision to evade taxes and its other choices fails to hold if an irreversible investment is introduced. This model applies the well-known Bernanke’s bad news principle, in which auditing is bad news for tax-evading firms. This article thus shows...

We analyse the effects of different regulatory schemes (price cap and profit sharing) on the endogenous size of a firm's investment. Using a real option approach in continuous time, we show that profit sharing does not delay a firm's start-up investment compared to a pure price-cap scheme....

The well-known Johansson-Samuelson theorem proves that, in partial equilibrium, comprehensive income taxation with a uniform tax rate does not affect asset values if tax depreciation allowances coincide with economic depreciation. In this article, we show that this result fails to hold in...

We analyze Auerbach´s (1991) proposal of a retrospective capital gains tax, which is equivalent to an accrual tax on an ex ante basis. Using a continuous-time model with stochastic interest rates and serially correlated asset returns, we prove that such an equivalence still holds. This means...