The Power of Faith: Effects of an Imam-led Information Campaign on Labor Supply and Social Interactions

Salvatore Federico (), Andrea Modena () and Luca Regis ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We study the impact of state-contingent dividend taxes (and bans) and capital regulation on a firm’s optimal strategy and value. In the model, the firm generates stochastic income under time-varying macroeconomic conditions. Its manager distributes dividends and issues costly equity to maximize shareholder value. We solve the manager’s stochastic control problem and derive the firm’s reserve distribution in closed form. Imposing dividend taxes (or bans) during crises generates a trade-off, as it encourages reserve accumulation in bad states but promotes payouts in good ones. Also, the policy undermines financial stability by reducing the firm’s value and its recapitalization incentives across states. Coordinating dividend taxes with counter-cyclical capital regulation can mitigate value losses and ameliorate the trade-off, but it also creates additional recapitalization disincentives.

Keywords: Capital requirements; dividend bans; payout taxation; policy coordination; stochastic control. (search for similar items in EconPapers)
JEL-codes: G32 G35 G38 (search for similar items in EconPapers)
Pages: 45
Date: 2025-01
New Economics Papers: this item is included in nep-cba
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