What is effect of corporate income tax on investment level

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What is the effect of the corporate income tax on the investment level of a perfectly competitive corporation that finances its investment by debt (with deductible interest) and has no adjustment cost of investment? Assume that the firm is allowed to deduct economic depreciation on its capital (the change in market value of its capital during the year) in computing its taxable income. Explain and justify your answer. How might the long run effect of the corporate income tax differ in real life from the effect it has in the model of a competitive corporation? Explain.

Reference no: EM13978309

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