Payout Taxes and the Allocation of Investment

52 Pages Posted: 8 Oct 2011 Last revised: 8 Apr 2022

See all articles by Bo Becker

Bo Becker

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); ECGI

Marcus Jacob

WHU - Otto Beisheim School of Management

Martin Jacob

WHU - Otto Beisheim School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: October 2011

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.

Suggested Citation

Becker, Bo and Jacob, Marcus and Jacob, Martin, Payout Taxes and the Allocation of Investment (October 2011). NBER Working Paper No. w17481, Available at SSRN: https://ssrn.com/abstract=1940326

Bo Becker (Contact Author)

Stockholm School of Economics ( email )

Drottninggatan 98
Dept. of Finance
111 60 Stockholm, 11160
Sweden

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Marcus Jacob

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Martin Jacob

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/steuer

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