The Start-Up and Growth Stages in Enterprise Formation: The New View of Dividend Taxation Reconsidered

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The Start-Up and Growth Stages in Enterprise Formation: The New View of Dividend Taxation Reconsidered

Author Info

Vesa Kanniainen ()
Seppo Kari
Jouko Ylä-Liedenpohja ()

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Abstract

Early-stage uncertainty makes the initial cost of capital greater than the expansion-stage one. Tax effects on enterprise formation, entrepreneurial effort and quality, and on capital costs are derived. For an incorporated enterprise (i) the entrepreneur’s ability threshold rises with the tax rate of the corporate form, (ii) the initial cost of capital due to a dividend tax is above the old view double-tax one, (iii) the start-up investment is not affected by undervaluation, but the discouragement engendered by dividend taxation is compensated by realization-based capital gains tax, (iv) with undervaluation, the expansion-stage cost of capital corresponds to the Johansson-Samuelson tax which is lower than the new view suggests, (v) without undervaluation, the dividend tax boosts expansion investment.

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Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 1476.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1476

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Find related papers by JEL classification:
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

This paper has been announced in the following NEP Reports:

NEP-ACC-2005-08-13 (Accounting & Auditing)
NEP-ALL-2005-08-13 (All new papers)
NEP-ENT-2005-08-13 (Entrepreneurship)
NEP-FMK-2005-08-13 (Financial Markets)
NEP-PBE-2005-08-13 (Public Economics)
NEP-TID-2005-08-13 (Technology & Industrial Dynamics)

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Vesa Kanniainen & Seppo Kari & Jouko Ylä-Liedenpohja, 2005. "Nordic Dual Income Taxation of Entrepreneurs," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
Other versions:
- Seppo Kari & Vesa Kanniainen & Jouko Ylä-Liedenpohja, 2007. "Nordic Dual Income Taxation of Entrepreneurs," VATT Discussion Papers 415, Government Institute for Economic Research (VATT). [Downloadable!]
- Vesa Kanniainen & Seppo Kari & Jouko Ylä-Liedenpohja, 2007. "Nordic dual income taxation of entrepreneurs," International Tax and Public Finance, Springer, vol. 14(4), pages 407-426, August. [Downloadable!] (restricted)

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