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Taxation and the Cost of Capital: The "Old" View, the "New" View and Another View

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Listed author(s):
  • Hans-Werner Sinn

Abstract

This paper is a critical survey of the recent literature on the tax effects on corporate finance and investment decisions. It corrects a common misinterpretation of the "new" view, emphasizes the cushion effect of financial optimization, dismisses the view that optimizing firms behave as if they maximized their cost of finance, studies the role of immature firms, questions the alleged support of the old view by the occurrence of share repurchases, comments on a potential US budget compromise, and suggests the idea of a Political Miller Equilibrium.

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File URL: http://www.nber.org/papers/w3501.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3501.

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Date of creation: Oct 1990
Publication status: published as Taxation and the Cost of Capital: The "Old" View, the "New" View, and Another View , Hans-Werner Sinn. in Tax Policy and the Economy, Volume 5 , Bradford. 1991
Handle: RePEc:nbr:nberwo:3501
Note: PE
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  1. Alan J. Auerbach, 1988. "Corporate Takeovers: Causes and Consequences," NBER Books, National Bureau of Economic Research, Inc, number auer88-1, June.
  2. Auerbach, Alan J, 1983. "Taxation, Corporate Financial Policy and the Cost of Capital," Journal of Economic Literature, American Economic Association, vol. 21(3), pages 905-940, September.
  3. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March.
  4. Mervyn A. King, 1974. "Taxation and the Cost of Capital," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 21-35.
  5. Goulder, Lawrence H. & Summers, Lawrence H., 1989. "Tax policy, asset prices, and growth : A general equilibrium analysis," Journal of Public Economics, Elsevier, vol. 38(3), pages 265-296, April.
  6. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215-215.
  7. James M. Poterba & Lawrence H. Summers, 1984. "The Economic Effects of Dividend Taxation," Working papers 343, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Bagwell, Laurie Simon & Shoven, John B, 1989. "Cash Distributions to Shareholders," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 129-140, Summer.
  9. 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.
  10. G. D. A. MacDougall, 1960. "THE BENEFITS and COSTS OF PRIVATE INVESTMENT FROM ABROAD: A THEORETICAL APPROACH," The Economic Record, The Economic Society of Australia, vol. 36(73), pages 13-35, 03.
  11. Mark Gertler & R. Glenn Hubbard, 1990. "Taxation, Corporate Capital Structure, and Financial Distress," NBER Chapters,in: Tax Policy and the Economy: Volume 4, pages 43-72 National Bureau of Economic Research, Inc.
  12. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-275, May.
  13. James M. Poterba, 1987. "Tax Policy and Corporate Saving," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(2), pages 455-516.
  14. Alan J. Auerbach, 1988. "Introduction to "Corporate Takeovers: Causes and Consequences"," NBER Chapters,in: Corporate Takeovers: Causes and Consequences, pages 1-8 National Bureau of Economic Research, Inc.
  15. Koichi Hamada, 1966. "Strategic Aspects of Taxation on Foreign Investment Income," The Quarterly Journal of Economics, Oxford University Press, vol. 80(3), pages 361-375.
  16. J. S. S. Edwards & M. J. Keen, 1984. "Wealth Maximization and the Cost of Capital: A Comment," The Quarterly Journal of Economics, Oxford University Press, vol. 99(1), pages 211-214.
  17. Murray C. Kemp, 1962. "Foreign Investment And The National Advantage," The Economic Record, The Economic Society of Australia, vol. 38(81), pages 56-62, 03.
  18. Joosung Jun, 1989. "Tax Policy and International Direct Investment," NBER Working Papers 3048, National Bureau of Economic Research, Inc.
  19. 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.
  20. 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.
  21. Howitt, Peter & Sinn, Hans-Werner, 1989. "Gradual Reforms of Capital Income Taxation," American Economic Review, American Economic Association, vol. 79(1), pages 106-124, March.
  22. Fullerton, Don & Mackie, James B. III, 1989. "Economic Efficiency in Recent Tax Reform History: Policy Reversals or Consistent Improvements?," National Tax Journal, National Tax Association, vol. 42(1), pages 1-13, March.
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