Personal Taxation, Portfolio Choice and the Effect of the Corporation Income Tax

13 Pages Posted: 25 Jun 2004 Last revised: 31 Aug 2010

See all articles by Martin S. Feldstein

Martin S. Feldstein

National Bureau of Economic Research (NBER); Harvard University

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Date Written: November 1980

Abstract

Extending the traditional treatment of the corporate tax to an economy with a progressive personal tax fundamentally changes the analysis. While the corporate tax system (CTS) does increase the total tax rate on corporate source income for some investors, the exclusion of retained earnings implies that the CTS lowers the tax rate for high-income investors. Analyzing such an economy requires replacing the traditional "equal-yield" equilibrium condition with a more general portfolio balance model. In this model, introducing a CTS can actually increase the corporate share of the capital stock even though the relative tax rate on corporate income rises.

Suggested Citation

Feldstein, Martin S. and Slemrod, Joel B., Personal Taxation, Portfolio Choice and the Effect of the Corporation Income Tax (November 1980). NBER Working Paper No. w0241. Available at SSRN: https://ssrn.com/abstract=260433

Martin S. Feldstein (Contact Author)

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Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business ( email )

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