Dividend taxation, share repurchases and the equity trap
This paper reconsiders the effects of dividend taxation. Particular attention is paid to the form of the “equity trap”, that is, the extent to which cash paid to the shareholders must be taxed as dividends. Our analysis shows that Sinn’s (1991) criticism of the well-known King and Fullerton (1984) methodology for underestimating the cost of new share issues amounts to a misleading comparison across two different regimes for the equity trap. Contrary to Sinn,we find that when dividends are paid following a new issue, as assumed by King-Fullerton, the cost of capital is higher than is the case when no dividends are paid.
|Date of creation:||15 May 2009|
|Date of revision:|
|Contact details of provider:|| Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden|
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
- Alan J. Auerbach, 1979.
"Wealth Maximization and the Cost of Capital,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 93(3), pages 433-446.
- David F. Bradford, 1979.
"The Incidence and Allocation Effects of a Tax on Corporate Distributions,"
NBER Working Papers
0349, National Bureau of Economic Research, Inc.
- Bradford, David F., 1981. "The incidence and allocation effects of a tax on corporate distributions," Journal of Public Economics, Elsevier, vol. 15(1), pages 1-22, February.
- Lindhe, Tobias & Södersten, Jan, 2006.
"The Equity Trap, the Cost of Capital and the Firm´s Growth Path,"
Working Paper Series
2006:19, Uppsala University, Department of Economics.
- Tobias Lindhe & Jan Södersten, 2006. "The Equity Trap, the Cost of Capital and the Firm’s Growth Path," CESifo Working Paper Series 1801, CESifo Group Munich.
- Sinn, Hans-Werner, 1991.
"The vanishing harberger triangle,"
Munich Reprints in Economics
19842, University of Munich, Department of Economics.
- Hans-Werner Sinn, 1991.
"Taxation and the Cost of Capital: The "Old" View, the "New" View, and Another View,"
in: Tax Policy and the Economy, Volume 5, pages 25-54
National Bureau of Economic Research, Inc.
- Hans-Werner Sinn, 1990. "Taxation and the Cost of Capital: The "Old" View, the "New" View and Another View," NBER Working Papers 3501, National Bureau of Economic Research, Inc.
- Alan J. Auerbach & Kevin A. Hassett, 2005. "The 2003 Dividend Tax Cuts and the Value of the Firm: An Event Study," NBER Working Papers 11449, National Bureau of Economic Research, Inc.
- Auerbach, Alan J. & Hassett, Kevin A., 2003.
"On the marginal source of investment funds,"
Journal of Public Economics,
Elsevier, vol. 87(1), pages 205-232, January.
- Alan J. Auerbach, 2001.
"Taxation and Corporate Financial Policy,"
NBER Working Papers
8203, National Bureau of Economic Research, Inc.
- Mervyn A. King & Don Fullerton, 1984. "The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany," NBER Books, National Bureau of Economic Research, Inc, number king84-1, September.
- Sinn, Hans-Werner, 1991.
"Share repurchases, the 'new' view, and the cost of capital,"
Elsevier, vol. 36(2), pages 187-190, June.
- Sinn, Hans-Werner, 1991. "Share repurchases, the ’new’ view, and the cost of capital," Munich Reprints in Economics 19844, University of Munich, Department of Economics.
- Kevin A. Hassett & Alan J. Auerbach, 2005. "The 2003 Dividend Tax Cuts and the Value of the Firm," AEI Economics Working Papers 49878, American Enterprise Institute.
- Auerbach, Alan J, 1983.
"Taxation, Corporate Financial Policy and the Cost of Capital,"
Journal of Economic Literature,
American Economic Association, vol. 21(3), pages 905-40, September.
- Alan J. Auerbach, 1982. "Taxation, Corporate Financial Policy and the Cost of Capital," NBER Working Papers 1026, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:hhs:uufswp:2009_005. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Katarina Grönvall)
If references are entirely missing, you can add them using this form.