Tax Bond Creation Using a Structural Model and its Extensions

TL;DR

This paper introduces a structural model for creating and pricing tax bonds, specifically Tax Normalization Guarantees, enabling companies to access temporary tax breaks and free capital, with methods for structuring and valuation.

Contribution

It presents a novel approach to treat taxes as debt, allowing the creation and valuation of tax bonds within a financial framework.

Findings

Proposes a model to create tax bonds as debt-like instruments.

Develops valuation methods for Tax Normalization Guarantee bonds.

Explores structuring these bonds into financial products.

Abstract

This article describes and explores taxes and debt in finance. Here a situation is thought about, where tax payments would qualify to be considered as debt. Using this principle we can infer that it is possible to create and price a type of bond (Tax Normalization Guarantee) for companies, which would allow them to enter in temporary tax breaks to allow them to free capital. Finally it is explored a way to structure these bonds in financial products and valuate them.