TY  - JOUR
AU  - Majd,Saman
AU  - Myers,Stewart C.
TI  - Tax Asymmetries and Corporate Income Tax Reform
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1924
PY  - 1986
Y2  - May 1986
UR  - http://www.nber.org/papers/w1924
L1  - http://www.nber.org/papers/w1924.pdf
N1  - Author contact info:
Saman Majd
230 Brookside Road
Darien
CT 06820
USA
Tel: 1 203 655 4987
Fax: 1 203 655 5473
E-Mail: saman@majd.us

Stewart C. Myers
Massachusetts Institute of Technology
Sloan School of Management
E62-620
77 Massachusetts Avenue
Cambridge, MA 02142
Tel: 617/253-6696
Fax: 617/258-6855
E-Mail: scmyers@mit.edu
AB  - This paper investigates the impact of tax asymmetries (the lack of full loss offsets) under current corporate income tax law and a stylized tax reform proposal. The government's tax claim on the firm's pretax cash flows is modelled as a series of path-dependent call options and valued by option pricing procedures and Monte Carlo simulation.The tax reform investigated reduces the statutory tax rate, eliminates the investment tax credit and sets tax depreciation approximately equal to economic depreciation. These changes would increase the effective tax rate on marginal investments by firms that always pay taxes, but dramatically reduce the potential burden of tax asymmetries. "Stand-alone" investments, which are exposed to the greatest burden, are uniformly more valuable under this reform, despite the loss of the investment tax credit and accelerated depreciation.These general results are backed up by a series of numerical experiments. We vary investment risk, inflation (with and without indexing of tax depreciation), and investigate how allowing interest on loss carry forwards would affect after-tax project value.
ER  -