Working Paper No. 9

Double Taxation and Corporate Capital Cost


Several attempts have been made to determine the tax differential between the corporate and non-corporate sectors of the economy, implied by the present double taxation of corporate source income. A common feature of these studies is the assumption that the retention of corporate profits gives rise to capital gains on a one-for-one basis. By this assumption, the tax burden on retained earnings is identified with the tax on capital gains.

In view of the preferential tax treatment given to capital gains, it is, however, quite rational for a management to undertake investments that produce less than a dollar's worth of capital gains for the marginal dollar of retention. To establish this assertion and its implications for the firm's effective tax burden, a theoretical model of firm behaviour is introduced. Specifically, the cost of capital to a firm maximizing stockholders wealth is derived, with due adjustments to the corporation income tax, stockholders' income tax and capital gains tax. In this way, the differential tax burden on corporate source income may be determined with explicit reference to the firm's cost of capital.
 

An Agenda for Europe

Institutional Reform for Innovation and Entrepreneurship

Omslag 2017 Institutional Reform for Innovation and Entrepreneurship.jpg

The authors of this book, Niklas Elert, Magnus Henrekson and Mikael Stenkula, advise the economies of the European Union to become more entrepreneurial in promoting innovation and economic growth. The authors propose a reform strategy with respect to several aspects to achieve this goal.

Events

Seminars organized by IFN

 

To present ongoing research informal brown-bag seminars are held on Mondays at 11:30 am. This is an opportunity for IFN researchers to test ideas and results.

Academically oriented seminars are most of the time held on Wednesdays at 10 am. At these events researchers from IFN and other institutions present their research.

In addition, IFN organizes seminars open to the public. Topics for these are derived from the IFN research.

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