Please use this identifier to cite or link to this item: https://hdl.handle.net/1822/65727

TitleForeign direct investment with tax holidays and policy uncertainty
Author(s)Azevedo, Alcino
Pereira, Paulo J.
Rodrigues, Artur
KeywordsFDI
Real options
Tax holidays
Taxation policy
Uncertainty
Issue date1-Apr-2019
PublisherWiley
JournalInternational Journal of Finance & Economics
CitationAzevedo, 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.
TypeArticle
URIhttps://hdl.handle.net/1822/65727
DOI10.1002/ijfe.1688
ISSN1076-9307
e-ISSN1099-1158
Publisher versionhttps://onlinelibrary.wiley.com/doi/full/10.1002/ijfe.1688
Peer-Reviewedyes
AccessOpen access
Appears in Collections:NIPE - Artigos em Revistas de Circulação Internacional com Arbitragem Científica

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