Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82692
Authors: 
Lindhe, Tobias
Södersten, Jan
Year of Publication: 
2006
Series/Report no.: 
Working Paper, Department of Economics, Uppsala University 2006:19
Abstract: 
This paper reconsiders Sinn’s (1991) nucleus theory of the corporation by comparing two different regimes for the equity trap. In the first of these, all cash paid to the shareholders is taxed as dividends, in the second, shareholders are allowed a tax-free return of capital contributed through new issues. A substantial difference is found between the regimes in the seize of initial equity injections, although in both regimes, no dividends are paid until a new long-run equilibrium is reached. Contrary to Sinn, we find that with optimal behavior, the cost of new equity is lower than suggested by conventional formulae.
Subjects: 
dividend taxation
equity trap
cost of capital
nucleus theory
growth path
JEL: 
H24
H25
H32
Document Type: 
Working Paper

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