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The Incidence and Allocation Effects of a Tax on Corporate Distributions

  • David F. Bradford

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'.

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File URL: http://www.nber.org/papers/w0349.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0349.

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Date of creation: May 1979
Date of revision:
Publication status: published as Bradford, David F. "The Incidence and Allocation Effects of a Tax on Corporate Distributions." Journal of Public Economics, Vol. 15, No. 1, (February 1981), pp. 1-22.
Handle: RePEc:nbr:nberwo:0349
Note: PE
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  1. Feldstein, Martin, 1982. "Government deficits and aggregate demand," Journal of Monetary Economics, Elsevier, vol. 9(1), pages 1-20.
  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.
  3. Stiglitz, Joseph E., 1973. "Taxation, corporate financial policy, and the cost of capital," Journal of Public Economics, Elsevier, vol. 2(1), pages 1-34, February.
  4. Buchanan, James M, 1976. "Barro on the Ricardian Equivalence Theorem," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 337-42, April.
  5. 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..
  6. King, Mervyn A, 1974. "Taxation and the Cost of Capital," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 21-35, January.
  7. 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.
  8. Asimakopulos, A. & Burbidge, J. B., 1975. "Corporate taxation and the optimal investment decisions of firms," Journal of Public Economics, Elsevier, vol. 4(3), pages 281-287, August.
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