Taxes and stimuli of investment under uncertainty

This article considers the effect on an irreversible investment of a subsid y to investment in combination with a taxation of future profits. It is sho wn that such a combination raising a zero expected revenue decreases the tr igger value of investment. The tax rate for which the stimulus works at zer o expected cost decreases as heterogeneity in the group of investors increa ses. The importance of the result is exemplified by the graduate tax. (C) 2 000 Elsevier Science B.V. All rights reserved. JEL classification: E22; E62 ; D92; G31.