Distortive Effects of Dividend Taxation

Tobias Lindhe () and Jan Södersten ()
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Tobias Lindhe: Uppsala Center for Fiscal Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

No 2013:9, Working Paper Series, Center for Fiscal Studies from Uppsala University, Department of Economics

Abstract: This paper examines how the distortions caused by dividend taxation depend on whether or not shareholders can recover their original equity injections without being subject to the dividend tax. We point out the alternative assumptions in the literature on this, and we compare two different tax regimes, one where it is impossible for the firm to pay cash to its shareholders that is not taxed as dividends, the other where the shareholders are allowed a tax-free return of the original capital contributed through new issues. Our analysis shows that the regimes imply a substantial difference to our perceptions of the distortive effects of dividend taxation.

Keywords: dividend taxation; share repurchases; equity trap; cost of capital; nucleus theory; growth path (search for similar items in EconPapers)
JEL-codes: H24 H25 H32 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2013-09-02
New Economics Papers: this item is included in nep-acc, nep-law, nep-pbe and nep-pub
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Related works:
Working Paper: Distortive Effects of Dividend Taxation (2013)
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