A valuation model for corporate tax liabilities is developed and used to derive a relationship for the relative yields of taxable and tax-exempt debt. The model incorporates both the incomplete tax loss offset of the U.S. corporate tax code and the resulting probabilistic marginal tax rate. The...

This paper demonstrates that the impact of the existing tax law is not uniform across projects with different variances of payoffs. A bias exists against projects with greater uncertainty of payoffs, which leads to an underinvestment in high risk projects. The bias against higher variance...