Dividend Taxation and the Cost of New Share Issues

Tobias Lindhe and Jan Södersten ()

No 5001, CESifo Working Paper Series from CESifo

Abstract: This paper examines how the effects of dividend taxation on the cost of new equity funds depend on whether or not shareholders can recover their original equity injections without being subject to the dividend tax. We point out the alternative assumptions in the literature on this, and we compare two different tax regimes, one where it is impossible for the firm to pay cash to its shareholders that is not taxed as dividends, the other where the shareholders are allowed a tax-free return of the original capital contributed through new issues. We conclude that any model, which explicitly or implicitly assumes that the shareholders cannot recover their original equity injections without being subject to the dividend tax, exaggerates the distortive effects of the tax.

Keywords: dividend taxation; return of capital; share repurchases; equity trap; cost of capital; nucleus theory; growth path (search for similar items in EconPapers)
JEL-codes: H24 H25 H32 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Dividend Taxation and the Cost of New Share Issues (2016)
Working Paper: Dividend Taxation and the Cost of New Share Issues (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5001

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