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A NOTE ON THE IMPACT OF PROGRESSIVE DIVIDEND TAXATION ON INVESTMENT DECISIONS

Published online by Cambridge University Press:  15 December 2010

Marika Santoro  and
Chao Wei
Marika Santoro
Affiliation:
Macroeconomic Analysis Division, Congressional Budget Office
Chao Wei*
Affiliation:
George Washington University
*
Address correspondence to: Chao Wei, Department of Economics, George Washington University, 2115 G Street NW, Washington, DC 20052, USA; e-mail: cdwei@gwu.edu.
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Abstract

This paper studies the distortionary impact of progressive dividend taxation on investment decisions under the premises of the “new” view. According to the new view, proportional dividend taxation does not distort firms' investment decisions. We find that progressive dividend taxation distorts investment decisions due to endogenous variations in the marginal tax rate caused by stochastic taxable income over the business cycle. The magnitude of this distortion critically depends upon the marginal tax rate and the progressivity of the tax system.

Keywords

New ViewDividend TaxInvestmentMarginal Tax Rate
Type
Notes
Information
Macroeconomic Dynamics , Volume 16 , Issue 2 , April 2012 , pp. 309 - 319
Copyright
Copyright © Cambridge University Press 2010

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