Taxation and Corporate Financial Policy

A model of corporate financial policy (debt-equity ratios and dividend payout rates) is included in the Harberger general equilibrium model of incidence of the corporate income tax. Illustrative calculations of the distortions of financial policy and increases in risk premiums induced by the corpora...

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Bibliographic Details
Published in:The Quarterly journal of economics 1980-03, Vol.94 (2), p.351-372
Main Authors: Ballentine, J. Gregory, McLure, Charles E.
Format: Article
Language:English
Subjects:
Capital income
Corporate income taxes
Corporate taxes
Corporations
Dividends
Economic policy
Equity
Income taxes
Personal income taxes
Risk premiums
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Summary:A model of corporate financial policy (debt-equity ratios and dividend payout rates) is included in the Harberger general equilibrium model of incidence of the corporate income tax. Illustrative calculations of the distortions of financial policy and increases in risk premiums induced by the corporate tax are provided. Because risk premiums on corporate securities would be reduced, eliminating the corporate tax or integrating it into the personal tax would increase the income of noncorporate investors relatively more than that of investors in corporate securities, and is therefore less regressive than is commonly thought.
ISSN:0033-5533
1531-4650
DOI:10.2307/1884545