The Efficiency Costs of Dividend Taxation with Managerial Firms

Marko Köthenbürger and Michael Stimmelmayr
Authors registered in the RePEc Author Service: Marko Koethenbuerger

VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association

Abstract: The paper analyzes the efficiency costs of dividend taxation in an effort-based corporate agency model in which non-verifiable managerial effort enhances taxable profits. We show that investment changes following a rise in dividend taxes might not be sufficient to infer the efficiency cost of dividend taxation as well as the financing regime of the firm that underlies the investment response, in contrast to insights from previous literature. We provide a testable implication to infer the mode of investment finance from investment responses. Furthermore, we show that imposing income tax on managerial incentive pay is welfare equivalent to a general dividend tax. Finally, we relate the results to recent empirical findings in the literature on dividend taxation.

JEL-codes: D21 D61 H21 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cfn and nep-pbe
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Related works:
Journal Article: The Efficiency Costs of Dividend Taxation with Managerial Firms (2022)
Working Paper: The Efficiency Costs of Dividend Taxation with Managerial Firms (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc16:145649

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