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Title:Dividend taxation, share repurchases and the equity trap PDF Logo
Authors:Lindhe, Tobias
Södersten, Jan
Issue Date:2009
Series/Report no.:CESifo working paper 2652
Abstract:This paper reconsiders the effects of dividend taxation. Particular attention is paid to the form of the equity trap, that is, the extent to which cash paid to the shareholders must be taxed as dividends. Our analysis shows that Sinn's (1991) criticism of the well-known King and Fullerton (1984) methodology for underestimating the cost of new share issues amounts to a misleading comparison across two different regimes for the equity trap. Contrary to Sinn, we find that when dividends are paid following a new issue, as assumed by King-Fullerton, the cost of capital is higher than is the case when no dividends are paid.
Subjects:dividend taxation
share repurchases
equity trap
cost of capital
nucleus theory
growth path
JEL:H24
H25
H32
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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