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The Incidence and Allocation Effects of a Tax on Corporate Distributions

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  • David F. Bradford

Abstract

To study the effects of 'double taxation' (first at the corporation level, then at the shareholder level this paper analyzes a model with a tax on all corporate distributions to equity owners and no other taxes. Contrary to the common view, the tax is shown to have no substitution effect and, in particular, no effect on the corporate choice between debt and equity (via retained earnings) finance. The analysis opens to question certain arguments commonly used to support integration of corporation and individual income taxes via 'dividend relief'.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:0349 Note: PE
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    1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    2. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467-467.
    3. Asimakopulos, A. & Burbidge, J. B., 1975. "Corporate taxation and the optimal investment decisions of firms," Journal of Public Economics, Elsevier, pages 281-287.
    4. Willem H. Buiter & James Tobin, 1978. "Debt Neutrality: A Brief Review of Doctrine and Evidence," Cowles Foundation Discussion Papers 497, Cowles Foundation for Research in Economics, Yale University.
    5. Feldstein, Martin, 1982. "Government deficits and aggregate demand," Journal of Monetary Economics, Elsevier, vol. 9(1), pages 1-20.
    6. Mervyn A. King, 1974. "Taxation and the Cost of Capital," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 21-35.
    7. Buchanan, James M, 1976. "Barro on the Ricardian Equivalence Theorem," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 337-342, April.
    8. Stiglitz, Joseph E., 1973. "Taxation, corporate financial policy, and the cost of capital," Journal of Public Economics, Elsevier, pages 1-34.
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