Luis H. R. Alvarez, Erkki Koskela

Irreversible Capital Accumulation and Nonlinear Tax Policy: A Note

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Jahrgang 63 () / Heft 1, S. 46-53 (8)

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We analyze the influence of tax progression on optimal investment policy and its value. We show that three possible optimal regimes arise, depending on the nature of the tax policy. If the exogenously given progression threshold lies between the optimal capital stocks in the case of higher and lower marginal profit taxes, then the optimal investment policy is independent of profit tax rates. But outside this corner solution, the optimal investment policy is conventional.

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