A Simple Model Of Endogenous Taxation with Irreversible Investment and Tax Breaks


A model of endogenous tax reform is created, characterized by irreversible investment and firms' purchase of tax breaks from the government. As the amount of tax breaks increases, the likelihood of a reform abolishing these breaks increases. The value of tax breaks and hazard rate of tax reform are calculated. The assumption of government revenue maximization is then adopted and the government's revenue maximization problem is solved.


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