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The life cycle of the firm with debt and capital income taxes

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Author Info
Brys, Bert
Bovenberg, A. Lans (Tilburg University, Center for Economic Research)

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

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

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Find related papers by JEL classification:
H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior

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  1. Sinn, Hans-Werner, 1991. "The vanishing harberger triangle," Journal of Public Economics, Elsevier, vol. 45(3), pages 271-300, August. [Downloadable!] (restricted)
    Other versions:
  2. Kevin A. Hassett & R. Glenn Hubbard, 1998. "Tax Policy and Investment," NBER Working Papers 5683, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. James M. Poterba, 1987. "Tax Policy and Corporate Saving," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1987-2), pages 455-516. [Downloadable!]
    Other versions:
  4. 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. [Downloadable!] (restricted)
  5. Hans-Werner Sinn, 1991. "Taxation and the Cost of Capital: The "Old" View, the "New" View and Another View," NBER Working Papers 3501, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March. [Downloadable!] (restricted)
  8. Sinn, Hans-Werner, 1991. "Share repurchases, the 'new' view, and the cost of capital," Economics Letters, Elsevier, vol. 36(2), pages 187-190, June. [Downloadable!] (restricted)
  9. Hans-Werner Sinn, 1990. "Taxation and the Birth of Foreign Subsidiaries," NBER Working Papers 3519, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Yla-Liedenpohja, Jouko, 1978. " Taxes, Dividends and Capital Gains in the Adjustment Cost Model of the Firm," Scandinavian Journal of Economics, Blackwell Publishing, vol. 80(4), pages 399-410.
  11. R. Glenn Hubbard, 1997. "Capital-Market Imperfections and Investment," NBER Working Papers 5996, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. 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. [Downloadable!] (restricted)
  13. William M. Gentry & R. Glenn Hubbard, 1998. "Fundamental Tax Reform and Corporate Financial Policy," NBER Working Papers 6433, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Auerbach, Alan J, 1983. "Taxation, Corporate Financial Policy and the Cost of Capital," Journal of Economic Literature, American Economic Association, vol. 21(3), pages 905-40, September. [Downloadable!] (restricted)
    Other versions:
  15. Seppo Kari, 1999. "Dynamic Behaviour of the Firm Under Dual Income Taxation," Research Reports 51, Government Institute for Economic Research Finland (VATT). [Downloadable!]
  16. Alan J. Auerbach, 2001. "Taxation and Corporate Financial Policy," NBER Working Papers 8203, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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