Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103087
Authors: 
Lindhe, Tobias
Södersten, Jan
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 5001
Abstract: 
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.
Subjects: 
dividend taxation
return of capital
share repurchases
equity trap
cost of capital
nucleus theory
growth path
JEL: 
H24
H25
H32
Document Type: 
Working Paper

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