The Impact of Progressive Dividend Taxation on Investment Decisions: Working Paper 2008-03

Marika Santoro and Chao D. Wei

No 19630, Working Papers from Congressional Budget Office

Abstract: In this paper, we study the distortionary impact of progressive dividend taxation on dynamic investment decisions under the "new view" of dividend taxation. We use a stochastic general equilibrium model to examine the qualitative and quantitative importance of the distortion. We find that the theoretical irrelevance of dividend taxation advocated by the new view does not hold when dividends are taxed progressively in an economy with uncertainty. In such an economy, dividend taxation introduces a wedge between the marginal cost and benefit of investment. The

Date: 2008-04-18
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