The Efficiency Costs of Dividend Taxation with Managerial Firms

Marko Koethenbuerger and Michael E Stimmelmayr

The Economic Journal, 2022, vol. 132, issue 643, 1123-1149

Abstract: The paper provides a positive and efficiency analysis of dividend taxation in a corporate agency model with a costly managerial effort. Unlike existing (agency) models, this model is consistent with empirical work in corporate finance and able to predict empirically observed investment responses to dividend taxation. In addition, we show that investment changes are not sufficient to infer, first, the efficiency cost of dividend taxation and, second, the financing regime underlying firms’ investments. We provide a testable implication that allows to empirically uncover the source of investment finance by comparing investment responses to dividend taxes and managerial incentive pay.

Date: 2022
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Working Paper: The Efficiency Costs of Dividend Taxation with Managerial Firms (2015)
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