Firm's output under uncertainty and asymmetric taxation

Itzhak Zilcha, Rafael Eldor

Research output: Contribution to journalArticlepeer-review

Abstract

We consider competitive firms operating under price uncertainty when taxation is asymmetric (i.e. profits are taxed at a higher rate than losses are compensated). In the absence of risk sharing tools, the larger 'gap' in taxation may either lower or increase the firm's optimal output, depending on whether the relative measure of risk aversion is less than or larger than 1. In the presence of risk sharing markets optimal output does not depend on the tax rates, nor on the price distribution or the firm's attitude towards risk. The firm will engage in hedging and, as a result, will lower its expected taxes.

Original languageEnglish
Pages (from-to)141-153
Number of pages13
JournalEconomica
Volume71
Issue number281
DOIs
StatePublished - Feb 2004

Fingerprint

Dive into the research topics of 'Firm's output under uncertainty and asymmetric taxation'. Together they form a unique fingerprint.

Cite this