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Financing Corporate Tax Cuts with Shareholder Taxes

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  • Alexis Anagnostopoulos
  • Orhan Erem Atesagaoglu
  • Eva Carceles-Poveda

Abstract

We study the aggregate and distributional consequences of replacing corporate profit taxes with shareholder taxes, namely, taxes on dividends and capital gains, in a setting with incomplete markets and heterogeneity at both the household and the firm level. The reform yields distributional gains with a large majority of households benefiting. Moreover, if dividend and capital gains are taxed at the same rate, the reform is also efficiency-enhancing and the implied optimal corporate income tax rate is zero. In contrast, an asymmetric tax treatment of dividend and capital gains induces a trade-off between efficiency and distributional concerns that is optimally resolved at a positive optimal corporate tax rate, implying double taxation.

Suggested Citation

  • Alexis Anagnostopoulos & Orhan Erem Atesagaoglu & Eva Carceles-Poveda, 2018. "Financing Corporate Tax Cuts with Shareholder Taxes," Department of Economics Working Papers 18-07, Stony Brook University, Department of Economics.
  • Handle: RePEc:nys:sunysb:18-07
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