The Efficiency Costs of Dividend Taxation with Managerial Firms

30 Pages Posted: 19 Nov 2015

See all articles by Marko Koethenbuerger

Marko Koethenbuerger

ETH Zurich - Department of Management, Technology and Economics; CESifo (Center for Economic Studies and Ifo Institute)

Michael Stimmelmayr

University of Bath - Department of Economics; ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: October 27, 2015

Abstract

The paper analyzes the efficiency costs of dividend taxation in an effort-based corporate agency model in which non-verifiable managerial effort enhances taxable profits. We show that investment changes following a rise in dividend taxes might not be sufficient to infer the efficiency cost of dividend taxation as well as the financing regime of the firm that underlies the investment response, in contrast to insights from previous literature. We provide a testable implication to infer the mode of investment finance from investment responses. Furthermore, we show that imposing income tax on managerial incentive pay is welfare equivalent to a general dividend tax. Finally, we relate the results to recent empirical findings in the literature on dividend taxation.

Keywords: dividend taxation, managerial effort, corporate governance, tax on incentive pay, managerial firms

JEL Classification: H250, D210

Suggested Citation

Koethenbuerger, Marko and Stimmelmayr, Michael, The Efficiency Costs of Dividend Taxation with Managerial Firms (October 27, 2015). CESifo Working Paper Series No. 5569, Available at SSRN: https://ssrn.com/abstract=2692958 or http://dx.doi.org/10.2139/ssrn.2692958

Marko Koethenbuerger (Contact Author)

ETH Zurich - Department of Management, Technology and Economics ( email )

Leonhardstrasse 21
Zurich, 8092
Switzerland
+41 44 6325446 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Michael Stimmelmayr

University of Bath - Department of Economics ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC) ( email )

ETH-Zentrum
Zurich, CH-8092
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
57
Abstract Views
522
rank
489,654
PlumX Metrics