Taxes, Investment and Q.

Edwards, J. S. S.; Keen, M. J.

This paper attempts to provide a unified analysis of the effects of taxation on the equilibrium value of marginal q under alternative financial policies. It is shown that the q approach does not avoid all the specification problems associated with analyses based on the cost of capital. The (theoretically and empirically) crucial relationship between average and marginal q is also examined, and it is shown that, under U K and US tax rules, the possibility of winding up precludes persistent undervaluation in equilibrium.

TAXATION; ECONOMIC equilibrium; INVESTMENTS; CAPITAL costs; MATHEMATICAL models of investments; EQUILIBRIUM; MATHEMATICAL models; COST; FINANCE

Review of Economic Studies, 1985, Vol 52, Issue 4, p665

0034-6527

Academic Journal

10.2307/2297738