In the absence of financing frictions, profit taxes reduce investment by their effect on the user cost of capital. With … finance constraints due to moral hazard, investment becomes sensitive to cash-flow and own equity of firms. We propose a … corporate finance model of investment and derive three central results: (i) Even small taxes impose first order welfare losses …

between business formation and medium run growth. An investment externality is identified that results in underaccumulation of … capital in the decentralized market equilibrium and, thus, creates an investment multiplier. Some form of investment promotion … is called for. The paper compares the effectiveness of policies to promote business formation with a general investment …

investment of small entrepreneurial and larger managerial firms in different financial regimes that are largely in line with …