Does the Investment Interest Limitation Explain the Existence of Dividends?
12 Pages Posted: 9 May 2005 Last revised: 15 Dec 2022
Date Written: August 1980
Abstract
Miller and Scholes show that under certain conditions the Federal Income tax taxes dividend income at a rate no higher than the rate on capital gains. Tabulations of actual 1977 tax returns show that the special circumstances under which this can occur apply to less than 3% of dividend income and no significant role can be ascribed to their result in the determination of corporate dividend policy.
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