Intangible investment and Ramsey capital taxation

Conesa, Juan Carlos; Domínguez, Begoña

doi:10.1016/j.jmoneco.2013.09.004

Cited by 19 publications

(20 citation statements)

References 32 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The second strand of the literature is the one focusing on the effects of dividend taxes on capital accumulation and the stock market in a framework with no heterogeneity. McGrattan and Prescott (2005), Gourio and Miao (2008), Santoro and Wei (2009a) and Conesa and Dominguez (2010) show that, in such a setting, a constant flat tax rate on dividends only affects stock prices, leaving all other equilibrium quantities such as investment and dividends unaffected. 6 We add household heterogeneity and find that dividend taxes affect all equilibrium quantities.…”

Section: Related Literature and Discussionmentioning

confidence: 99%

Dividend and Capital Gains Taxation Under Incomplete Markets

2012

View full text Add to dashboard Cite

Motivated by the Jobs and Growth Tax Relief Reconciliation Act of 2003, we study the effects of capital income tax cuts in a framework where firms make investment decisions to maximize their market value and households are subject to uninsurable labor income risk. We find that the effects of capital gains tax cuts are qualitatively similar to those found in the absence of household heterogeneity. However, dividend tax cuts surprisingly lead to a reduction in aggregate investment. This is because they increase the market value of the existing capital. In equilibrium, households then require a higher return to hold this additional wealth, leading to a lower capital stock.This also implies that dividend tax cuts are welfare reducing in the long run, not only because of the traditional reasons of redistribution from poor to rich, but also because of a fall in long run aggregate output and consumption. Taking into account the transition mitigates the losses but the JGTRRA tax cuts still lead to a welfare reduction equivalent to a 0.5% drop in consumption. In line with empirical evidence, the model also predicts substantial increases in dividends and stock prices following the tax cuts.

show abstract

Section: Related Literature and Discussionmentioning

confidence: 99%

Dividend and Capital Gains Taxation Under Incomplete Markets

2012

View full text Add to dashboard Cite

show abstract

“…The increase in the value of this existing equity ¡  0  −  −1 ¢  −1 represents accrued capital gains, which are taxed at the rate   . 9 Since we allow firms to raise new equity   , the market value of equity at time  (after new equity is issued) is 10 The households' budget constraint can thus be expressed as:…”

Section: Householdsmentioning

confidence: 99%

“…where  ∈ [0 1] is the capital depreciation rate. Finally, we assume dividend payments cannot be negative   ≥ 0 (9) and no repurchases are allowed   ≥ 0…”

Section: Firmsmentioning

confidence: 99%

“…None of these studies consider shareholder taxation as part of the suggested reform and this is where our paper's contribution lies relative to them. Conesa and Dominguez (2013), on the other hand, include dividend (but not capital gains) taxes amongst the tax instruments that a government has at its disposal, in addition to corporate taxes and labor income taxes. They go a step further than the previously mentioned studies as well as ours, in that they compute optimal Ramsey taxes rather than onceand-for-all tax rate changes.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

On the Double Taxation of Corporate Profits

2014

View full text Add to dashboard Cite

This paper studies the aggregate and distributional effects of switching from taxing corporate profits at the firm level to taxing them at the household level, in the form of dividend and capital gains taxes. It is argued that a careful analysis of the relevant trade-offs necessitates the construction of a model that incorporates substantial heterogeneity across households and across firms. Such a model is constructed and used to evaluate the effects of several alternative reforms, where the main focus is on how to finance a reduction in corporate profits taxes. It is shown that using shareholder taxes to finance such a tax cut represents a better alternative to using labor income taxes, because it generates welfare benefits for a majority of households and can thus gather popular support. Focusing on shareholder taxes, the option of increasing dividend taxes only is evaluated against another alternative in which both dividend and capital gains taxes are increased. The former reform has the unintended consequence of creating misallocation of capital and this reduces the overall welfare benefits. The latter reform avoids introducing this distortion and is found to be the best alternative. In this scenario, a complete elimination of corporate profits taxes leads to an increase in long run output of approximately 2% and welfare gains equivalent to 1% of consumption. A less dramatic reform, in which the tax rates on all types of personal income as well as on corporate income are equalized, yields smaller overall benefits but is found to benefit more than 95% of households in the economy.JEL classification: E60

show abstract

“…McGrattan and Prescott (2005) and Atesagaoglu (2012) study how corporate income taxation affects the market valuation of firms in environments with a representative firm. Conesa and Domínguez (2013) advocate for the elimination of corporate income taxation in a Ramsey optimal taxation exercise with a representative firm, with no financial frictions and no firm entry/exit. Similar to us, Anagnostopoulos et al (2015) evaluate the gains of eliminating corporate income taxation in a model with firm heterogeneity and household heterogeneity.…”

Section: Introductionmentioning

confidence: 99%

Taxation and the Life Cycle of Firms

Erosa

González

2019

SSRN Journal

View full text Add to dashboard Cite

The Hopenhayn and Rogerson (1993) framework is extended to understand how different forms of taxing capital income affect fi rms' investment and fi nancial policies over their life cycle. Corporate income taxation slows down fi rm growth over the life cycle by reducing after-tax profi ts available for reinvesting, and it distorts optimal fi rms' size. Dividend income taxation reduces external equity fi nancing, but it does not affect size at maturity. Capital gains taxes make fi rms start larger, so that internal growth is lower. With these mechanisms in mind, we calibrate our economy to the US and discuss different revenue-neutral tax reforms that might lead to increases in aggregate output and capital.JEL classifi cation: D21, E22, E62, G32, H32. ResumenEn este trabajo extendemos el modelo de Hopenhayn y Rogerson (1993) para entender cómo distintos impuestos sobre capital afectan a las decisiones de inversión y de fi nanciación de las empresas, así como a su ciclo de vida. El impuesto sobre sociedades ralentiza el crecimiento interno de las empresas, ya que estas tienen menos benefi cios después de impuestos para reinvertir, y distorsiona su tamaño óptimo. El impuesto sobre los dividendos reduce la fi nanciación a través de la emisión de acciones, pero no afecta a su tamaño en la madurez. El impuesto sobre las ganancias de capital hace que las empresas empiecen con un tamaño mayor para que el crecimiento interno sea menor. Teniendo en cuenta estos mecanismos, calibramos nuestra economía a Estados Unidos y discutimos reformas impositivas neutrales para el presupuesto del Gobierno que podrían incrementar la producción y el capital agregados.Palabras clave: macroeconomía, impuestos sobre el capital, dinámica de empresas, inversión.

show abstract

Intangible investment and Ramsey capital taxation

Cited by 19 publications

References 32 publications

Dividend and Capital Gains Taxation Under Incomplete Markets

Dividend and Capital Gains Taxation Under Incomplete Markets

On the Double Taxation of Corporate Profits

Taxation and the Life Cycle of Firms

Contact Info

Product

Resources

About