The Optimal Taxation of Dividends in a Small Open Economy
This paper analyses the optimal taxation of dividends and other types of income from portfolio investment. We show that, in an open economy, it is not desirable to offer double taxation relief for dividends paid by domestic firms to domestic households. This result holds for fairly general utility functions. The reason is that the marginal shareholder in domestic firms is a foreign investor. This implies that the level of real investment is not affected by the taxation of domestic dividend income at the household level. A reduction of the tax burden on dividends is therefore merely an undesirable subsidy on domestic asset holdings. Our results also extend the literature on the optimal taxation of risky asset income in general.
|Date of creation:||2000|
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NBER Working Papers
1994, National Bureau of Economic Research, Inc.
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- Wolfram Richter, 1992. "The optimal taxation of risky capital income: An elasticity rule," Journal of Economics, Springer, vol. 55(1), pages 101-111, February.
- Michael Devereux & Harold Freeman, 1995. "The impact of tax on foreign direct investment: Empirical evidence and the implications for tax integration schemes," International Tax and Public Finance, Springer, vol. 2(1), pages 85-106, February.
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735, Queen's University, Department of Economics.
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- Joseph E. Stiglitz, 1982. "The Inefficiency of the Stock Market Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 241-261.
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