Taxes, Corporate Financial Policy and Investment Decisions in Australia

Matt Benge

The Economic Record, 1997, vol. 73, issue 220, 1-15

Abstract: This paper presents a formal model of an optimizing firm to examine incentives provided by Australia's full imputation scheme in combination with its capital gains tax provisions. It explores how the tax system affects optimal dividend and financial policy. It derives an expression for the cost of capital for corporate investment which takes account of the way in which corporate tax payments influence firms' ability to pay franked dividends and examines how this is affected by capital gains taxation.

Date: 1997
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