Payout taxes and the allocation of investment
By: Bo Becker, Marcus Jacob, Martin Jacob
Contributors: Jacob, Marcus; Jacob, Martin; Harvard Business School
Edition: 3rd rev.
Series: Working paper / Harvard Business School -- 11-040; Working paper (Harvard Business School) -- 11-040
Publisher: Harvard Business School
Published: 2011
Place of publication: Boston]
Language: eng
Number of pages: 50
Description: 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.
Notes: "October 2010, revised November 2010, March 2011, September 2011" -- Publisher's website.

Includes bibliographical references.