Financing Corporate Tax Cuts with Shareholder Taxes

Alexis Anagnostopoulos, Orhan Erem Atesagaoglu and Eva Carceles-Poveda

Department of Economics Working Papers from Stony Brook University, Department of Economics

Abstract: We study the aggregate and distributional consequences of replacing corporate profit taxes with shareholder taxes, namely, taxes on dividends and capital gains, in a setting with incomplete markets and heterogeneity at both the household and the firm level. The reform yields distributional gains with a large majority of households benefiting. Moreover, if dividend and capital gains are taxed at the same rate, the reform is also efficiency-enhancing and the implied optimal corporate income tax rate is zero. In contrast, an asymmetric tax treatment of dividend and capital gains induces a trade-off between efficiency and distributional concerns that is optimally resolved at a positive optimal corporate tax rate, implying double taxation.

Date: 2018
New Economics Papers: this item is included in nep-dge, nep-pbe and nep-pub
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:nys:sunysb:18-07

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