Is It Possible to Increase Taxing and Conserve a Good Investment Climate in the Country?

Abstract

Within investment models, developed by Brusov, Filatova, and Orekhova earlier (Brusov and Filatova 2011; Brusov et al. 2011a, b, c, 2012a, b, 2013a, b, 2014a, b; Filatova et al. 2008; Brusova 2011), the influence of tax on profit rate on effectiveness of long-term investment projects at different debt levels is investigated. It is shown that increase of tax on profit rate from one side leads to decrease of project NPV, but from other side, it leads to decrease of sensitivity of NPV with respect to leverage level. At high leverage level L, the influence of tax on profit rate increase on effectiveness of investment projects becomes significantly less. We come to conclusion, that taxing could be differentiated depending on debt level of investment projects of the company: for projects with high debt level L, it is possible, in principle, to apply a higher tax on profit rate.