Dividend Taxation and the Cost of New Share Issues

Tobias Lindhe () and Jan Södersten ()
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Tobias Lindhe: Uppsala Center for Fiscal Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

No 2014:12, Working Paper Series, Center for Fiscal Studies from Uppsala University, Department of Economics

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)
Pages: 20 pages
Date: 2014-09-23
New Economics Papers: this item is included in nep-acc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Forthcoming as Lindhe, Tobias and Jan Södersten, 'Dividend Taxation and the Cost of New Share Issues' in FinanzArchiv/Public Finance Analysis, 2016.

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http://uu.diva-portal.org/smash/get/diva2:749886/FULLTEXT03.pdf (application/pdf)

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:hhs:uufswp:2014_012

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