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Taxation and the Cost of Capital: The "Old" View, the "New" View, and Another View

In: Tax Policy and the Economy, Volume 5

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  • Hans-Werner Sinn

Abstract

This paper is a critical survey of the recent literature on the tax effects on corporate finance and investment decisions. It corrects a common misinterpretation of the "new" view, emphasizes the cushion effect of financial optimization, dismisses the view that optimizing firms behave as if they maximized their cost of finance, studies the role of immature firms, questions the alleged support of the old view by the occurrence of share repurchases, comments on a potential US budget compromise, and suggests the idea of a Political Miller Equilibrium.
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Suggested Citation

  • Hans-Werner Sinn, 1991. "Taxation and the Cost of Capital: The "Old" View, the "New" View, and Another View," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 25-54, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:11268
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    References listed on IDEAS

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