Payout Taxes and the Allocation of Investment

Bo Becker, Marcus Jacob and Martin Jacob

No 17481, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: When corporate payout is taxed, internal equity (retained earnings) is cheaper than external equity (share issues). High taxes will favor firms who can finance internally. If there are no perfect substitutes for equity finance, payout taxes may thus change the investment behavior of firms. Using an international panel with many changes in payout taxes, we show that this prediction holds well. Payout taxes have a large impact on the dynamics of corporate investment and growth. Investment is "locked in" in profitable firms when payout is heavily taxed. Thus, apart from any aggregate effects, payout taxes change the allocation of capital.

JEL-codes: G30 G31 H25 (search for similar items in EconPapers)
Date: 2011-10
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as Becker, Bo & Jacob, Marcus & Jacob, Martin, 2013. "Payout taxes and the allocation of investment," Journal of Financial Economics, Elsevier, vol. 107(1), pages 1-24.

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