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- Forsfält, Tomas, 1964-
(author)
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Timing options and taxation : essays on the economics of firm creation and tax evasion
- 1999
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Doctoral thesis (other academic/artistic)abstract
- Taxation of Small Firms under Uncertainty: A Real Option View of Firm CreationThis paper addresses the impact of the tax system on the incentives to become self-employed. The new approach here is that the creation of a firm is assumed to be an opportunity but not an obligation, that is, a real option. A comprehensive income tax system and a “dual” tax system of the Nordic type are compared. The comprehensive system yields a higher threshold with respect to creating a firm than the dual system.Swedish data on disposable income for different socio-economic groups are used to evaluate the relevance of the critical assumptions in the model and to find parameter estimates. A result is that the assumptions are consistent with data for white-collar labor but not for blue-collar labor.The Effects of Risk Aversion and Age on Investments in New FirmsHow does the age of risk-averse individuals affect investments in private projects? This question is analyzed under the assumption that such individuals have to invest a large fraction of their personal wealth in order to establish a new firm. Thresholds conditional on age that trigger a switch from one asset to another are derived in a continuous-time portfolio choice model with zero-or-one choices. As the investor gets older - and depending on random events - not only wealth, but also the thresholds, might increase. Thus, there are two counteracting effects on the likelihood of becoming an entrepreneur.Tax Evasion: A Real Option ApproachA theoretical model of excise tax evasion is developed in this paper. The dynamics of a change in tax policy is derived, under the assumption that consumers benefit from a lower price when entering a “black market”. However, entry also imposes a sunk cost, which gives rise to asymmetric effects and persistence effects on both aggregate demand and on tax revenues. An increase in the tax rate instantaneously brings more entrants into the black market, whereas a tax cut has no short-run effects on the fraction of the population that has access to the black market.
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