Firm Valuations, the Cost of Capital and the Tax Treatment of Capital Gains

Chris Jones ()

ANU Working Papers in Economics and Econometrics from Australian National University, College of Business and Economics, School of Economics

Abstract: By recognising the cash flow characteristics of personal taxes on dividends Auerbach, Bradford and King find they reduce the current value of a firm’s equity without affecting the marginal cost of capital funded from retained earnings. This paper draws on work by Boadway and Bruce to show why personal taxes levied on realized capital gains have the same effects, where the common practice of approximating them with accrual based taxes set at lower rates is misleading. We use these findings to recommend reforms to dividend imputation schemes that would convert progessive personal taxes on (taxed) equity income into accrual based taxes.

JEL-codes: G30 H20 (search for similar items in EconPapers)
Pages: 29 Pages
Date: 2010-04
New Economics Papers: this item is included in nep-acc and nep-bec
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Persistent link: https://EconPapers.repec.org/RePEc:acb:cbeeco:2010-518

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