Macroeconomic Effects of Dividend Taxation with Investment Credit Limits

Matteo Ghilardi and Roy Zilberman

No 387012802, Working Papers from Lancaster University Management School, Economics Department

Abstract: A dynamic general equilibrium model augmented for an occasionally-binding investment borrowing limit reconciles competing views on the macroeconomic effects of dividend taxation. Permanent tax reforms are distortionary in the credit-constrained long-run equilibrium but are neutral otherwise. Temporary tax cuts may be expansionary or contractionary in the short-term depending on their scale and on the firm's initial and interim credit position. Interactions between payout tax shocks and the financial constraint tightness produce state-contingent, non-linear, and asymmetrical macroeconomic dynamics. These findings are consistent with the varied responses in investment rates and asset prices observed in the data following historical dividend tax changes.

Keywords: Dividend Taxation; Occasionally-Binding Borrowing Constraints; Investment; Tobin's q; Business Activity (search for similar items in EconPapers)
JEL-codes: E22 E32 E44 E62 H25 H30 H32 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-dge, nep-pbe and nep-pub
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http://www.lancaster.ac.uk/media/lancaster-univers ... casterWP2023_005.pdf (application/pdf)

Related works:
Journal Article: Macroeconomic Effects of Dividend Taxation with Investment Credit Limits (2024)
Working Paper: Macroeconomic Effects of Dividend Taxation with Investment Credit Limits (2022)
Working Paper: Macroeconomic Effects of Dividend Taxation with Investment Credit Limits (2022)
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