FEEM working papers "Note di lavoro"
2021.27
Date: 20/10/2021

The start-up decision under default risk


Authors:

Nicola Comincioli (Fondazione Eni Enrico Mattei, University of Brescia); Paolo M. Panteghini (University of Brescia, CESifo); Sergio Vergalli (Fondazione Eni Enrico Mattei, University of Brescia)

JEL n.: H25, G33, G38
Keywords: Real Options, Business Taxation, Default Risk

Abstract

This study introduces a real option model to investigate how fiscal policy affects a representative firm's investment decision and to measure its welfare effects. On the one hand, the effects of financial instability on the optimal investment timing and on the probability of default are studied. On the other hand, it is shown how the net present value of an investment project, the tax revenue generated and the welfare are influenced by financial instability. Then, a comparison of welfare effects of tax policy on start-ups, mature and obliged firms is provided. This comparison provides policy-makers a tool to shape their tax systems according to the characteristics of their firms. All presented analyses are supported by numerical simulations, based on realistic data.

***

Suggested citation: N. Comincioli, P. P. Panteghini, S. Vergalli, 'The start-up decision under default risk', Nota di Lavoro 27.2021, Milano, Italy: Fondazione Eni Enrico Mattei

Download file
Download file
The start-up decision under default risk

FEEM Newsletter & Update

Subscribe to stay connected.

Your data will be processed by FEEM - Eni Enrico Mattei Foundation - Data Controller - to receive the Foundation's Newsletter & Update via e-mail. To send the requested information, the Data Controller uses e-mail sending service providers established in the U.S.A .: for this, your consent to the transfer of your email address to the U.S.A. is required, without which it will not be possible to comply with your request. We invite you to consult the complete information to obtain detailed information to protect your rights.