In this article we use a stochastic model with one representative firm to study business tax policy under default risk. We will show that, for a given tax rate, the government has an incentive to reduce (increase) financial instability and default costs if its objective function is welfare (tax revenue).

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Suggested citation: Comincioli, N., S. Vergalli, P. M. Panteghini¬† (2019), ‘Business Tax Policy under Default Risk ‘, Nota di Lavoro 11.2019, Milano, Italy: Fondazione Eni Enrico Mattei.