Scandinavian Working Papers in Economics
Working Paper Series, Center for Fiscal Studies,
Uppsala University, Department of Economics
No 2014:12: Dividend Taxation and the Cost of New Share Issues
Tobias Lindhe () and Jan Södersten ()
Additional contact information
Tobias Lindhe: Uppsala Center for Fiscal Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Jan Södersten: Uppsala Center for Fiscal Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
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
20 pages, September 23, 2014
Full text files
FULLTEXT03.pdf
- Fortchoming as
- Tobias Lindhe and Jan Södersten, 'Dividend Taxation and the Cost of New Share Issues', FinanzArchiv/Public Finance Analysis
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