A theoretical evaluation of the Swedish corporate tax reform act of 1994

This paper studies the implications of the Swedish tax reform of 1994, by explicitly modeling some unusual features of the tax code such as the Annell deduction and the tax equalization reserve (SURV). The paper is about the effects of tax policy on corporate investment and financial structure. Financial preferences are derived using pairwise comparisons, and the weighted average cost of capital is evaluated. This is done by allowing for endogenous adjustment in the firm's financial choices. This paper demonstrates how theoretical and numerical analysis can be combined to evaluate the overall effects of simultaneous changes in several tax parameters.