Tax Revenue and Economic Performance Analysis

A lower corporate tax rate lowers ROI needed to invest Expected Value = Discounted Future Cash flow * (1- tax rate) In Corporate Finance, investments must meet or surpass a certain ROI (usually risk-adjusted Weighted Average Cost of Capital). When the tax rate decreases, more projects surpass the investment threshold → More investment (in theory) A higher corporate tax rate lowers the expected value of investment opportunities A lower corporate tax rate increases the in expected value of investment opportunities 33

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