Dividend and Corporate Taxation in an Agency Model of the Firm

Chetty, Raj; Saez, Emmanuel

doi:10.1257/pol.2.3.1

Cited by 115 publications

(152 citation statements)

References 40 publications

(42 reference statements)

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“…8 The firm has the opportunity to invest USD 1 in year t. If the firm invests in the project, it receives a rate of return, r, net of corporate 7 See Alstadsaeter and Jacob (2012) for a thorough description of the Swedish tax system and the 2006 tax reform. 8 We would obtain similar predictions in more complex models that include agency costs (Chetty and Saez 2010) or intertemporal aspects (Korinek and Stiglitz 2009). taxes. We assume that the firm distributes all profits in year t+1 as dividends.…”

Section: Investment Incentives and The 2006 Reformmentioning

confidence: 78%

Do dividend taxes affect corporate investment?

Alstadsæter

Jacob

Michaely

2017

Journal of Public Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We exploit Sweden's 2006 dividend tax cut of 10 percentage points for closely held corporations and five percentage points for widely held corporations. Using rich administrative panel data and triple-difference estimators, we find that this dividend tax cut affects allocation of corporate investment. Cashconstrained firms increase investment after the dividend tax cut relative to cash-rich firms. Reallocation is stronger among closely held firms that experience a larger tax cut. This result is explained by higher nominal equity in cash-constrained firms and by higher dividends in cash-rich firms after the tax cut. The heterogeneous investment responses imply that the dividend tax cut raises efficiency by improving allocation of investment. JEL No.: G30, G31, H25 Terms of use: Documents in EconStor may

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Section: Investment Incentives and The 2006 Reformmentioning

confidence: 78%

Do dividend taxes affect corporate investment?

Alstadsæter

Jacob

Michaely

2017

Journal of Public Economics

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“…Although the studies in turn of this subject tend to be circumscribed to a unique firm or group of integrated firms that undertake diversified activities, with the managers within each department or division negotiating with the shareholders the corresponding budget allocations, such discussion is straightforward to extrapolate to our environment of a unique representative investor in the economy. About agency and power relations within the firm, with consequences on the allocation of scarce resources see, e.g., Shleifer and Vishny (1989), La Porta et al (2000), Rajan et al (2000), Burkart and Panunzi (2006), Agliardi and Agliardi (2008), Albuquerque and Wang (2008) and Chetty and Saez (2010).…”

Section: Theoretical Foundationsmentioning

confidence: 99%

Optimal resource allocation in a representative investor economy

Gomes

2015

Economic Modelling

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The Ramsey-Cass-Koopmans neoclassical growth setup and the AK endogenous growth framework are two prototypes of a class of growth models where, by assumption, investment resources are always perfectly allocated to production. As a corollary, these models offer a partial view of the growth process circumscribed to a limit case, namely the most favorable case in which all possible frictions on the allocation of investment resources are absent. This paper adds to the conventional growth setup an optimal mechanism of assignment of investment resources that contemplates the possibility of inefficient allocation. In the assumed economy there is a single representative investor and a large number of firms that compete for the available resources. The new setup highlights how agency costs may deviate the economy from the benchmark growth outcome, potentially generating less desirable long-run results. The appeal of the proposed framework resides also on the fact that new determinants of growth emerge and take a leading role, namely the investor's sentiment and the quality of the firms' investment proposals.

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“…In the second modeling approach, the shareholders -implicitly, as in models in the King and Fullerton (1984) tradition 2 , or explicitly, as in Devereux and Griffith (1998) and Chetty and Saez (2010) 3 -are allowed a tax-free recovery of their initial equity. Devereux and Griffith state that most tax systems treat a repurchase of equity at its original price to be a repayment 1 See for example Auerbach (2002).…”

Section: Introductionmentioning

confidence: 99%

“…2 King and Fullerton's (1984) formulae for the cost of capital have been put to a widespread use in international comparisons and for policy oriented research, see for example OECD (1991), Jorgenson and Landau (1993) and EU (2001). 3 Note that Chetty and Saez (2010) is the revised and published version of Chetty and Saez (2007). The authors changed their assumption on the tax treatment of return of original equity for the published version.…”

Section: Introductionmentioning

confidence: 99%

“…4 The discussion in the economics literature on the effects of dividend taxation has recently been revitalized, for example by including elements from the corporate finance tradition (eg. Chetty and Saez (2010)). We do not contribute to this important development, as the basic model of corporate taxation is sufficient for our purpose to point out the alternative assumptions in the literature regarding the taxation of the return of original equity.…”

Section: Introductionmentioning

confidence: 99%

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Dividend Taxation and the Cost of New Share Issues

Lindhe¹,

Södersten²

2016

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper examines how the effects of dividend taxation on the cost of new equity funds depend on whether or not shareholders can recover their original equity injections without being subject to the dividend tax. We point out the alternative assumptions in the literature on this, and we compare two different tax regimes, one where it is impossible for the firm to pay cash to its shareholders that is not taxed as dividends, the other where the shareholders are allowed a tax-free return of the original capital contributed through new issues. We conclude that any model, which explicitly or implicitly assumes that the shareholders cannot recover their original equity injections without being subject to the dividend tax, exaggerates the distortive effects of the tax. Terms of use: Documents in EconStor mayJEL-Code: H240, H250, H320.

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Dividend and Corporate Taxation in an Agency Model of the Firm

Cited by 115 publications

References 40 publications

Do dividend taxes affect corporate investment?

Do dividend taxes affect corporate investment?

Optimal resource allocation in a representative investor economy

Dividend Taxation and the Cost of New Share Issues

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