Dividend Taxation and Financial Business Cycles

Matteo Ghilardi and Roy Zilberman

Economics Letters, 2024, vol. 238, issue C

Abstract: We examine the interactions between different dividend tax systems and financial shocks in a dynamic stochastic general equilibrium (DSGE) model with an occasionally-binding investment credit limit. We show that dividend taxes largely determine the collateral value of assets, thereby occasionally distorting investment decisions and altering the propagation of financial shocks. Permanently lower dividend taxes dampen financially-driven business cycles in a state-contingent fashion. They also help explain substantial macroeconomic asymmetries following equally-sized expansionary and contractionary financial shocks.

Keywords: Occasionally-binding borrowing constraints; Investment; Asset prices; Financial shocks (search for similar items in EconPapers)
JEL-codes: E22 E32 E44 H25 H30 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:238:y:2024:i:c:s0165176524001927

DOI: 10.1016/j.econlet.2024.111709

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