Mitigating shareholder taxation in small open economies?
AbstractThis article reconsiders the role of dividend taxation and its effect on the cost of capital of small firms. Using a simple portfolio model for small open economies, we show that a decrease in dividend taxes on large companies unambiguously increases the required rate of return for small companies. A dividend tax cut for both, large and small companies may however lead to the counter-intuitive result of increasing cost of capital for small firms. For different small open economies, we further provide statistics on the correlation between the return of large and small firms that drives the counter-intuitive result. Our results suggest that mitigating payout taxes in small open economies can have ambiguous effects on the cost of capital of small, domestically owned firms. This is particularly relevant when tax reforms are designed to stimulate investments by small firms scarce in internal funds.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by Uppsala University, Department of Economics in its series Working Paper Series, Center for Fiscal Studies with number 2012:3.
Length: 13 pages
Date of creation: 30 Jan 2012
Date of revision:
Publication status: Published as Jacob, Martin and Jan Södersten, 'Mitigating shareholder taxation in small open economies?' in Finnish Economic Papers , 2013.
Contact details of provider:
Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
More information through EDIRC
Shareholder taxation; corporate-personal tax integration; open economy; investment incentives; small firms;
Other versions of this item:
- Jacob, Martin & Södersten, Jan, 2012. "Mitigating shareholder taxation in small open economies?," Working Paper Series 2012:12, Uppsala University, Department of Economics.
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
This paper has been announced in the following NEP Reports:
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.:
- Bradford, David F., 1981.
"The incidence and allocation effects of a tax on corporate distributions,"
Journal of Public Economics,
Elsevier, vol. 15(1), pages 1-22, February.
- David F. Bradford, 1979. "The Incidence and Allocation Effects of a Tax on Corporate Distributions," NBER Working Papers 0349, National Bureau of Economic Research, Inc.
- Amos Tversky & Daniel Kahneman, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Levine's Working Paper Archive
7656, David K. Levine.
- Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
- Bo Becker & Marcus Jacob & Martin Jacob, 2011.
"Payout Taxes and the Allocation of Investment,"
NBER Working Papers
17481, National Bureau of Economic Research, Inc.
- Martin Fochmann & Martin Jacob, 2011. "Behavioral Explanation of Tax Asymmetries," FEMM Working Papers 110021, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Katarina Grönvall).
If references are entirely missing, you can add them using this form.