Taxation and the Cost of Capital: The "Old" View, the "New" View and Another View

39 Pages Posted: 4 Jul 2004 Last revised: 28 Jul 2022

See all articles by Hans-Werner Sinn

Hans-Werner Sinn

CESifo (Center for Economic Studies and Ifo Institute); National Bureau of Economic Research (NBER); Ludwig Maximilian University of Munich (LMU)

Date Written: October 1990

Abstract

This paper is a critical survey of the recent literature on the tax effects on corporate finance and investment decisions. It corrects a common misinterpretation of the "new" view, emphasizes the cushion effect of financial optimization, dismisses the view that optimizing firms behave as if they maximized their cost of finance, studies the role of immature firms, questions the alleged support of the old view by the occurrence of share repurchases, comments on a potential US budget compromise, and suggests the idea of a Political Miller Equilibrium.

Suggested Citation

Sinn, Hans-Werner, Taxation and the Cost of Capital: The "Old" View, the "New" View and Another View (October 1990). NBER Working Paper No. w3501, Available at SSRN: https://ssrn.com/abstract=270366

Hans-Werner Sinn (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Ludwig Maximilian University of Munich (LMU)

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