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Personal Taxation, Portfolio Choice, and the Effect of the Corporation Income Tax

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  • Feldstein, Martin S
  • Slemrod, Joel

Abstract

Extending the traditional treatment of the corporate tax to an economy with a progressive personal tax fundamentally changes the analysis. While the corporate tax system (CTS) does increase the total tax rate on corporate source income for some investors, the exclusion of retained earnings implies that the CTS lowers the tax rate for high-income investors. Analyzing such an economy requires replacing the traditional "equal-yield" equilibrium condition with a more general portfolio balance model. In this model, introducing a CTS can actually increase the corporate share of the capital stock even though the relative tax rate on corporate income rises.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 88 (1980)
Issue (Month): 5 (October)
Pages: 854-66

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Handle: RePEc:ucp:jpolec:v:88:y:1980:i:5:p:854-66

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Web page: http://www.journals.uchicago.edu/JPE/

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References

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  1. Martin Feldstein & Lawrence H. Summers, 1979. "Inflation and the Taxation of Capital Income in the Corporate Sector," NBER Working Papers 0312, National Bureau of Economic Research, Inc.
  2. Stiglitz, Joseph E, 1969. "The Effects of Income, Wealth, and Capital Gains Taxation on Risk-Taking," The Quarterly Journal of Economics, MIT Press, vol. 83(2), pages 263-83, May.
  3. John B. Shoven & John Whalley, 1972. "A General Equilibrium Calculation of the Effects of Differential Taxation of Income from Capital in the U.S," Cowles Foundation Discussion Papers 328, Cowles Foundation for Research in Economics, Yale University.
  4. Shoven, John B, 1976. "The Incidence and Efficiency Effects of Taxes on Income from Capital," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1261-83, December.
  5. Feldstein, Martin S, 1969. "The Effects on Taxation on Risk Taking," Journal of Political Economy, University of Chicago Press, vol. 77(5), pages 755-64, Sept./Oct.
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Citations

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Cited by:
  1. Martin Feldstein, 1979. "Inflation, Tax Rules, and the Stock Market," NBER Working Papers 0403, National Bureau of Economic Research, Inc.
  2. Joel Slemrod, 1981. "A General Equilibrium Model of Taxation with Endogenous Financial Behavior," NBER Working Papers 0799, National Bureau of Economic Research, Inc.
  3. Roger H. Gordon & Joel Slemrod, 1998. "Are "Real" Responses to Taxes Simply Income Shifting Between Corporate and Personal Tax Bases?," NBER Working Papers 6576, National Bureau of Economic Research, Inc.
  4. Martin Feldstein & Jerry Green, 1979. "Why Do Companies Pay Dividends?," NBER Working Papers 0413, National Bureau of Economic Research, Inc.
  5. Magnus Henrekson & Dan Johansson & Mikael Stenkula, 2010. "Taxation, Labor Market Policy and High-Impact Entrepreneurship," Journal of Industry, Competition and Trade, Springer, vol. 10(3), pages 275-296, September.
  6. Martin Feldstein, 1987. "Imputing Corporate Tax Liabilities to Individual Taxpayers," NBER Working Papers 2349, National Bureau of Economic Research, Inc.
  7. Roger H. Gordon & Jeffrey K. MacKie--Mason, 1994. "Tax Distortions to the Choice of Organizational Form," Public Economics 9401004, EconWPA, revised 18 Jan 1994.
  8. Roger H. Gordon & Jeffrey K. MacKie-Mason, 1990. "Effects of the Tax Reform Act of 1986 on Corporate Financial Policy and Organizational Form," NBER Working Papers 3222, National Bureau of Economic Research, Inc.
  9. Césaire Assah Meh, 2002. "Entrepreneurial Risk, Credit Constraints, and the Corporate Income Tax: A Quantitative Exploration," Working Papers 02-21, Bank of Canada.
  10. Cullen, Julie Berry & Gordon, Roger H., 2007. "Taxes and entrepreneurial risk-taking: Theory and evidence for the U.S," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1479-1505, August.
  11. Romanov, Dmitri, 2006. "The corporation as a tax shelter: Evidence from recent Israeli tax changes," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1939-1954, November.
  12. Clemens Fuest & Bernd Huber & Søren Bo Nielsen, . "Why Is the Corporate Tax Rate Lower than the Personal Tax Rate?," EPRU Working Paper Series 00-17, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  13. Douhan, Robin & Henrekson, Magnus, 2007. "The Political Economy of Entrepreneurship," Working Paper Series 716, Research Institute of Industrial Economics.
  14. Roger H. Gordon & Julie Berry Cullen, 2002. "Taxes and Entrepreneurial Activity: Theory and Evidence for the U.S," NBER Working Papers 9015, National Bureau of Economic Research, Inc.
  15. Fuest, Clemens & Huber, Bernd & Nielsen, Soren B., 2003. "Why is the corporate tax rate lower than the personal tax rate?: The role of new firms," Journal of Public Economics, Elsevier, vol. 87(1), pages 157-174, January.

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