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This paper examines the intertemporal effect of corporate income taxation on the investment behavior of a firm that faces imperfect capital markets. It shows that when capital markets are imperfect, the optimizing firm goes through different phases of growth. In this dynamic setting, the effect of a corporate tax on profits varies over time. An increase in the corporate profit tax rate initially reduces investment, but the effect is reversed over time as the firm adjusts its financing policy to the new tax rate.

Banks and Banking --- Investments: General --- Investments: Stocks --- Corporate Taxation --- Taxation and Subsidies: Incidence --- Business Taxes and Subsidies --- Fiscal Policies and Behavior of Economic Agents: Firm --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Investment --- Capital --- Intangible Capital --- Capacity --- Interest Rates: Determination, Term Structure, and Effects --- Corporate & business tax --- Investment & securities --- Macroeconomics --- Finance --- Corporate income tax --- Stocks --- Investment policy --- Capital accumulation --- Market interest rates --- Taxes --- Financial institutions --- National accounts --- Financial services --- Corporations --- Taxation --- Saving and investment --- Interest rates --- United States