Open AccessFinancing corporate tax cuts with shareholder taxes
Author(s) -
Anagnostopoulos Alexis,
Atesagaoglu Orhan Erem,
CárcelesPoveda Eva
Publication year - 2022
Publication title -
quantitative economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.062
H-Index - 27
eISSN - 1759-7331
pISSN - 1759-7323
DOI - 10.3982/qe1167
Subject(s) - monetary economics , dividend , economics , dividend tax , shareholder , capital (architecture) , double taxation , corporate tax , capital income , tax reform , tax rate , international taxation , state income tax , tax avoidance , finance , public economics , corporate governance , gross income , archaeology , history
We study the aggregate and distributional consequences of replacing corporate profit taxes with shareholder taxes, namely taxes on dividends and capital gains, in a setting with incomplete markets and heterogeneity at both the household and the firm level. The reform yields distributional gains with a large majority of households benefiting. Moreover, if dividend and capital gains are taxed at the same rate, the reform is also efficiency‐enhancing and the implied optimal corporate income tax rate is zero. In contrast, an asymmetric tax treatment of dividend and capital gains induces a trade‐off between efficiency and distributional concerns that is optimally resolved at a positive optimal corporate tax rate, implying double taxation.