Wide vs. Narrow Tax Bases under Optimal Investment Timing
CESifo, Munich, 2004
CESifo Working Paper No. 1246
![](https://cesifo.org/DocImg/cesifo1_wp1246.jpg?c=1689237120)
This article compares an ACE system with a CBIT system in an open economy. Using a real-option approach we show that, if a firm can decide when to invest, a tradeoff is found. According to traditional wisdom, a high-income firm investing in an ACE system faces a heavier tax burden at each instant. On the other hand, it finds it optimal to invest earlier, thereby enjoying a longer stream of income. If, given the same tax burden, the latter effect is great enough, the firm will prefer the ACE system. In this article we also run a simulation which shows that preference for an ACE system is a realistic result.