This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Corporate Income Taxation and Signaling

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Kwang Soo Cheong
Abstract

A signalling model is developed to investigate the consequences of corporate income taxation in the presence of adverse selection in the equity market. The model obtains a unique, informationally-constrained efficient equilibrium in which a better quality firm retains more inside-equity, and, as in the complete information case, only profitable firms are supported. The corporate income tax affects signalling costs as well as the profitability of projects. Numerical experiments with exponential utility functions find that the inside-equity position of a better quality firm increases as the corporate income tax rate rises. This reaction is, however, insensitive to the tax rate change due to the risk-sharing with the government, which leads to the interesting result that the corporate income tax only incurs a lower welfare cost than the lump sum tax with the same tax revenue.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.economics.hawaii.edu/research/workingpapers/88-98/WP_97-13.pdf
File Format:
File Function:
Download Restriction: no

Publisher Info
Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 199713.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 30 pages
Date of creation: 1997
Date of revision:
Handle: RePEc:hai:wpaper:199713

Contact details of provider:
Postal: 2424 Maile Way, Honolulu, HI 96822
Phone: (808)956-8730
Fax: (808)956-4347
Email:
Web page: http://www.economics.hawaii.edu/
More information through EDIRC

Order Information:
Email:
Web: http://www.economics.hawaii.edu/research/workingpapers/workingpapers.html

For technical questions regarding this item, or to correct its listing, contact: (Web Technician).

Related research
Keywords: corporate income taxation; excess burden; signalling;

Find related papers by JEL classification:
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Talmor, Eli, 1981. "Asymmetric Information, Signaling, and Optimal Corporate Financial Decisions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(04), pages 413-435, November. [Downloadable!]
  2. John, Kose & Williams, Joseph, 1985. " Dividends, Dilution, and Taxes: A Signalling Equilibrium," Journal of Finance, American Finance Association, vol. 40(4), pages 1053-70, September. [Downloadable!] (restricted)
  3. Scott, James H, Jr, 1977. "Bankruptcy, Secured Debt, and Optimal Capital Structure," Journal of Finance, American Finance Association, vol. 32(1), pages 1-19, March. [Downloadable!] (restricted)
  4. MacKie-Mason, Jeffrey K, 1990. " Do Taxes Affect Corporate Financing Decisions?," Journal of Finance, American Finance Association, vol. 45(5), pages 1471-93, December. [Downloadable!] (restricted)
    Other versions:
  5. Riley, John G., 1975. "Competitive signalling," Journal of Economic Theory, Elsevier, vol. 10(2), pages 174-186, April. [Downloadable!] (restricted)
    Other versions:
  6. Stiglitz, Joseph E., 1973. "Taxation, corporate financial policy, and the cost of capital," Journal of Public Economics, Elsevier, vol. 2(1), pages 1-34, February. [Downloadable!] (restricted)
  7. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Blackwell Publishing, vol. 51(3), pages 393-414, July. [Downloadable!] (restricted)
  8. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  9. Hamilton, Jonathan H, 1987. "Taxation, Savings, and Portfolio Choice in a Continuous Time Model," Public Finance = Finances publiques, , vol. 42(2), pages 264-82.
  10. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March. [Downloadable!] (restricted)
  11. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-87, May. [Downloadable!] (restricted)
    Other versions:
  12. Ratti, Ronald A. & Shome, Parthasarathi, 1977. "On a general equilibrium model of the incidence of the corporation tax under uncertainty," Journal of Public Economics, Elsevier, vol. 8(2), pages 233-238, October. [Downloadable!] (restricted)
  13. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August. [Downloadable!] (restricted)
    Other versions:
  14. 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)
  15. Kenneth L. Judd, 1984. "Efficiency, Adverse Selection, and Production," Discussion Papers 606, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  16. Stiglitz, Joseph E., 1976. "The corporation tax," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 303-311. [Downloadable!] (restricted)
  17. Grinblatt, Mark & Hwang, Chuan Yang, 1989. " Signalling and the Pricing of New Issues," Journal of Finance, American Finance Association, vol. 44(2), pages 393-420, June. [Downloadable!] (restricted)
  18. Dammon, Robert M & Senbet, Lemma W, 1988. " The Effect of Taxes and Depreciation on Corporate Investment and Financial Leverage," Journal of Finance, American Finance Association, vol. 43(2), pages 357-73, June. [Downloadable!] (restricted)
  19. Batra, Raveendra N., 1975. "A general equilibrium model of the incidence of corporation income tax under uncertainty," Journal of Public Economics, Elsevier, vol. 4(4), pages 343-360, November. [Downloadable!] (restricted)
  20. Innes, Robert, 1992. "Adverse selection, investment, and profit taxation," European Economic Review, Elsevier, vol. 36(7), pages 1427-1452, October. [Downloadable!] (restricted)
  21. Roger H. Gordon, 1981. "Taxation of Corporate Capital Income: Tax Revenues vs. Tax Distortions," NBER Working Papers 0687, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  22. Gordon, Roger H & Wilson, John Douglas, 1989. "Measuring the Efficiency Cost of Taxing Risky Capital Income," American Economic Review, American Economic Association, vol. 79(3), pages 427-39, June. [Downloadable!] (restricted)
    Other versions:
  23. Ross, Stephen A, 1985. " Debt and Taxes and Uncertainty," Journal of Finance, American Finance Association, vol. 40(3), pages 637-57, July. [Downloadable!] (restricted)
Full references

Statistics
Access and download statistics

Did you know? You can use IDEAS to provide links to papers and articles in your course syllabus.

This page was last updated on 2009-11-24.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.