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The Life Cycle of the Firm with Debt and Capital Income Taxes

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  • Brys, B.
  • Bovenberg, A.L.

    (Tilburg University, Center for Economic Research)

Abstract

This paper analyses the impact of capital income taxes on financial and investment decisions of corporations.Extending Sinn's (1991) nucleus theory of the firm with debt finance, the model determines the optimal sources of finance (debt, newly issued equity or retained earnings), the optimal use of the investment's earnings (dividends, retentions, interest payments or debt redemption), and the optimal capital accumulation throughout the life cycle of the firm.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2006-91.

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Date of creation: 2006
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Handle: RePEc:dgr:kubcen:200691

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Web page: http://center.uvt.nl

Related research

Keywords: tax burden; capital income taxation; firm behaviour;

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  1. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  2. Kevin A. Hassett & R. Glenn Hubbard, 1996. "Tax Policy and Investment," NBER Working Papers 5683, National Bureau of Economic Research, Inc.
  3. Sinn, Hans-Werner, 1991. "Share repurchases, the 'new' view, and the cost of capital," Economics Letters, Elsevier, vol. 36(2), pages 187-190, June.
  4. Alan J. Auerbach, 1982. "Taxation, Corporate Financial Policy and the Cost of Capital," NBER Working Papers 1026, National Bureau of Economic Research, Inc.
  5. Seppo Kari, 1999. "Dynamic Behaviour of the Firm Under Dual Income Taxation," Research Reports 51, Government Institute for Economic Research Finland (VATT).
  6. James M. Poterba, 1987. "Tax Policy and Corporate Saving," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(2), pages 455-516.
  7. Alan J. Auerbach, 2001. "Taxation and Corporate Financial Policy," NBER Working Papers 8203, National Bureau of Economic Research, Inc.
  8. Peter Birch Soerensen, . "Changing Views of the Corporate Income Tax," EPRU Working Paper Series 95-05, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  9. Yla-Liedenpohja, Jouko, 1978. " Taxes, Dividends and Capital Gains in the Adjustment Cost Model of the Firm," Scandinavian Journal of Economics, Wiley Blackwell, vol. 80(4), pages 399-410.
  10. Jorgenson, D.W., 1992. "Tax Reform and the Cost of Capital : An International Comparison," Harvard Institute of Economic Research Working Papers 1621, Harvard - Institute of Economic Research.
  11. Hans-Werner Sinn, 1991. "Taxation and the Cost of Capital: The "Old" View, the "New" View, and Another View," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 25-54 National Bureau of Economic Research, Inc.
  12. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
  13. van Schijndel, Geert-Jan C.Th., 1986. "Dynamic behaviour of a value maximizing firm under personal taxation," European Economic Review, Elsevier, vol. 30(5), pages 1043-1062, October.
  14. Sinn, H.W., 1990. "Taxation And The Birth Of Foreign Subsidiaries," Papers 66, Princeton, Woodrow Wilson School - Discussion Paper.
  15. Sinn, Hans-Werner, 1991. "The vanishing harberger triangle," Munich Reprints in Economics 19842, University of Munich, Department of Economics.
  16. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
  17. Fazzari, Steven M & Hubbard, R Glenn & Petersen, Bruce C, 1988. "Investment, Financing Decisions, and Tax Policy," American Economic Review, American Economic Association, vol. 78(2), pages 200-205, May.
  18. Mervyn A. King & Don Fullerton, 1984. "The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany," NBER Books, National Bureau of Economic Research, Inc, number king84-1.
  19. William M. Gentry & R. Glenn Hubbard, 1998. "Fundamental Tax Reform and Corporate Financial Policy," NBER Working Papers 6433, National Bureau of Economic Research, Inc.
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Cited by:
  1. Lindhe, Tobias & Södersten, Jan, 2013. "Distortive Effects of Dividend Taxation," Working Paper Series, Center for Fiscal Studies 2013:9, Uppsala University, Department of Economics.
  2. Lindhe, Tobias & Södersten, Jan, 2013. "Distortive Effects of Dividend Taxation," Working Paper Series 2013:16, Uppsala University, Department of Economics.

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