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|Title:||Foreign direct investment with tax holidays and policy uncertainty|
Pereira, Paulo J.
|Journal:||International Journal of Finance & Economics|
|Citation:||Azevedo, A., Pereira, P. J., & Rodrigues, A. (2019). Foreign direct investment with tax holidays and policy uncertainty. International Journal of Finance & Economics, 24(2), 727-739|
|Abstract(s):||We study foreign direct investment agreements that entitle firms to a lower tax rate during a tax holiday period. Our model considers both finite and uncertain tax holiday period settings. We show that the tax holiday duration may have, for small tax rate reductions, a nonmonotonic effect on the investment timing. For sufficiently high tax reductions, a longer tax holiday speeds up investment. A higher tax reduction during the tax holiday and a lower uncertainty are shown to have a monotonic effect on the threshold, hastening investment. However, in case of a finite tax holiday, for exceptional high salvage values, a higher uncertainty can speed up investment. We show the usefulness of our model to design an optimal incentives package that prompts investment.|
|Appears in Collections:||NIPE - Artigos em Revistas de Circulação Internacional com Arbitragem Científica|