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Mitigating Shareholder Taxation in Small Open Economies?

Author

Listed:
  • Martin Jacob

    (WHU-Otto Beisheim School of Management and Uppsala Center for Fiscal Studies)

  • Jan Södersten

    (Department of Economics, Uppsala University)

Abstract

This article reconsiders the role of dividend taxation and its effect on the cost of capital for small firms. Using a simple portfolio model for small open economies, we show that an isolated increase in dividend taxes on large companies unambiguously decreases the required rate of return on small companies. A dividend tax increase for both large and small companies may moreover lead to the counter-intuitive result of decreasing the 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.

Suggested Citation

  • Martin Jacob & Jan Södersten, 2013. "Mitigating Shareholder Taxation in Small Open Economies?," Finnish Economic Papers, Finnish Economic Association, vol. 26(1), pages 1-12, Spring.
    • Handle: RePEc:fep:journl:v:26:y:2013:i:1:p:1-12
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    Citations

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    Cited by:

    1. Jan Södersten, 2020. "Why the Norwegian shareholder income tax is neutral," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(1), pages 32-37, February.

    More about this item

    JEL classification:

    • 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

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