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Taxation and Corporate Financial Policy

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  • J. Gregory Ballentine
  • Charles E. McLure, Jr.

Abstract

A model of corporate financial policy (debt-equity ratios and dividend payout rates) is included in the Harberger general equilibrium model of incidence of the corporate income tax. Illustrative calculations of the distortions of financial policy and increases in risk premiums induced by the corporate tax are provided. Because risk premiums on corporate securities would be reduced, eliminating the corporate tax or integrating it into the personal tax would increase the income of non-corporate investors relatively more than that of investors in corporate securities, and is therefore less regressive than is commonly thought.

Suggested Citation

  • J. Gregory Ballentine & Charles E. McLure, Jr., 1980. "Taxation and Corporate Financial Policy," NBER Working Papers 0243, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0243
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    References listed on IDEAS

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    1. James H. Scott Jr., 1976. "A Theory of Optimal Capital Structure," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 33-54, Spring.
    2. Miller, Merton H. & Scholes, Myron S., 1978. "Dividends and taxes," Journal of Financial Economics, Elsevier, vol. 6(4), pages 333-364, December.
    3. Ratti, Ronald A. & Shome, Parthasarathi, 1977. "The general equilibrium theory of tax incidence under uncertainty," Journal of Economic Theory, Elsevier, vol. 14(1), pages 68-83, February.
    4. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215-215.
    5. 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.
    6. Shoven, John B, 1976. "The Incidence and Efficiency Effects of Taxes on Income from Capital," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1261-1283, December.
    7. M. A. King, 1971. "Corporate Taxation and Dividend Behaviour—A Comment," Review of Economic Studies, Oxford University Press, vol. 38(3), pages 377-380.
    8. M. S. Feldstein, 1970. "Corporate Taxation and Dividend Behaviour," Review of Economic Studies, Oxford University Press, vol. 37(1), pages 57-72.
    9. Barzel, Yoram, 1976. "An Alternative Approach to the Analysis of Taxation," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1177-1197, December.
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    Cited by:

    1. Don Fullerton & Yolanda K. Henderson & John B. Shoven, 1982. "A Comparison of Methodologies in Empirical General Equilibrium Models of Taxation," NBER Working Papers 0911, National Bureau of Economic Research, Inc.
    2. Nadeau, Serge J., 1988. "A Model to Measure the Effects of Taxes on the Real and Financial Decisions of the Firm," National Tax Journal, National Tax Association;National Tax Journal, vol. 41(4), pages 467-481, December.
    3. Timothy J. Goodspeed & Daphne A. Kenyon, 1993. "The Nonprofit Sector's Capital Constraint: Does It Provide a Rationale for the Tax Exemption Granted To Nonprofit Firms?," Public Finance Review, , vol. 21(4), pages 415-433, October.
    4. Serge Nadeau & Robert P. Strauss, 1991. "Tax Policies and the Real and Financial Decisions of the Firm: the Effects of the Tax Reform Act of 1986," Public Finance Review, , vol. 19(3), pages 251-292, July.
    5. Charles E. McLure Jr., 1981. "The Elusive Incidence of the Corporate Income Tax: The State Case," Public Finance Review, , vol. 9(4), pages 395-413, October.

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