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Macroeconomic Effects of Dividend Taxation with Investment Credit Limits

Author

Listed:
  • Matteo F. Ghilardi
  • Roy Zilberman

Abstract

A dynamic general equilibrium model with an occasionally binding investment borrowing limit reconciles competing views on the macroeconomic effects of dividend taxation. Specifically, permanent tax reforms are distortionary in the credit-constrained long-run equilibrium but are neutral otherwise. In the short-to-medium term, tax cuts produce muted, expansionary, or contractionary impacts depending on their scale, their duration, and the firm’s credit position. Interactions between dividend tax shocks and the financial constraint tightness generate state-contingent, nonlinear, and asymmetrical macroeconomic dynamics. These findings help explain investment rate and asset price fluctuations observed following historical tax reforms. Finally, we explore the implications of dividend tax uncertainty.

Suggested Citation

  • Matteo F. Ghilardi & Roy Zilberman, 2024. "Macroeconomic Effects of Dividend Taxation with Investment Credit Limits," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 2(3), pages 409-448.
    • Handle: RePEc:ucp:jpemac:doi:10.1086/730221
    DOI: 10.1086/730221
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    Cited by:

    1. Pham, Ngoc-Sang, 2023. "Intertemporal equilibrium with physical capital and financial asset: Role of dividend taxation," Mathematical Social Sciences, Elsevier, vol. 123(C), pages 95-104.
    2. Ghilardi, Matteo F. & Zilberman, Roy, 2024. "Dividend Taxation and Financial Business Cycles," Economics Letters, Elsevier, vol. 238(C).

    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • 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
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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