The incidence and allocation effects of a tax on corporate distributions
To study the effects of 'double taxation' (first at the corporation level, then at the shareholder level this paper analyzes a model with a tax on all corporate distributions to equity owners and no other taxes. Contrary to the common view, the tax is shown to have no substitution effect and, in particular, no effect on the corporate choice between debt and equity (via retained earnings) finance. The analysis opens to question certain arguments commonly used to support integration of corporation and individual income taxes via 'dividend relief'.
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- Barro, Robert J., 1974.
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