The Start-Up and Growth Stages in Enterprise Formation: The 'New View' of Dividend Taxation Reconsidered

29 Pages Posted: 19 Jul 2005

See all articles by Vesa Kanniainen

Vesa Kanniainen

University of Helsinki - Department of Political and Economic Studies; CESifo (Center for Economic Studies and Ifo Institute)

Seppo Juhani Kari

Government of the Republic of Finland - VATT Institute for Economic Research

Jouko Ylä-Liedenpohja

Tampere University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: June 2005

Abstract

Early-stage uncertainty makes the initial cost of capital greater than the expansion-stage one. Tax effects on enterprise formation, entrepreneurial effort and quality, and on capital costs are derived. For an incorporated enterprise (i) the entrepreneur's ability threshold rises with the tax rate of the corporate form, (ii) the initial cost of capital due to a dividend tax is above the old view double-tax one, (iii) the start-up investment is not affected by undervaluation, but the discouragement engendered by dividend taxation is compensated by realization-based capital gains tax, (iv) with undervaluation, the expansion-stage cost of capital corresponds to the Johansson-Samuelson tax which is lower than the new view suggests, (v) without undervaluation, the dividend tax boosts expansion investment.

Keywords: taxation of start-up enterprises

JEL Classification: H25

Suggested Citation

Kanniainen, Vesa and Kari, Seppo Juhani and Ylä-Liedenpohja, Jouko, The Start-Up and Growth Stages in Enterprise Formation: The 'New View' of Dividend Taxation Reconsidered (June 2005). Available at SSRN: https://ssrn.com/abstract=756627

Vesa Kanniainen

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland
+358-0-9-1911 (Phone)
+358-0-191-8877 (Fax)

HOME PAGE: http://www.cesifo.de

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Seppo Juhani Kari

Government of the Republic of Finland - VATT Institute for Economic Research ( email )

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00531
Finland

Jouko Ylä-Liedenpohja (Contact Author)

Tampere University - Department of Economics ( email )

P.O. Box 607
Tampere, FIN-33101
Finland

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

Poschinger Str. 5
Munich, DE-81679
Germany

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