 Taxation of domestic dividend income and foreign investment holdingsAnil Mishra () and Ronald Ratti International Review of Economics & Finance, 2014, vol. 31, issue C, 218-231 Abstract: This paper highlights the role of dividend imputation in influencing cross-border equity flows. We account for the dividend imputation scheme employed by various countries at different periods of time. In this paper it is argued that the heavier is domestic taxation of domestic dividend income, the more attractive is foreign investment to domestic agents. Dividend imputation eliminates the double taxation of domestic income, reduces the effective tax rate on domestic investment and makes investment in foreign securities less attractive. A fall of 10% in effective tax rate on domestic dividend income reduces foreign equity investment by about 5%. Domestic investors who are paid dividends under a dividend imputation system receive a credit for the tax paid at the company level and this reduces the effective tax rate. Cross-border equity investment is increased if tax credit rises for taxes paid overseas. Empirical analysis is based on bilateral investments among 23 mature economies over 2001–2011. Keywords: Foreign equity investment; Domestic dividend taxes; Dividend imputation schemes; Franking ratio (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:31:y:2014:i:c:p:218-231 DOI: 10.1016/j.iref.2014.01.018 Access Statistics for this article International Review of Economics & Finance is currently edited by H. Beladi and C. Chen More articles in International Review of Economics & Finance from Elsevier |
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