Dividend and Corporate Taxation in an Agency Model of the Firm

By Raj Chetty, Emmanuel Saez. 2010

171 citations recorded by the source corpus.

Recent evidence on the effect of dividend taxes on firm behavior is inconsistent with neoclassical theories of dividend and corporate taxation. We develop a simple agency model in which managers and shareholders have conflicting interests to explain the evidence. In this model, dividend taxation induces managers to undertake unproductive investments by retaining earnings, and creates a first-order deadweight cost. In contrast, corporate taxes do not distort the manager's payout decision and may only create second-order efficiency costs. Corporate income taxation may therefore be a more efficient way to generate revenue than dividend taxation, challenging existing intuitions based on neoclassical models. (JEL D21, G35, H25, H32)

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/71bd5cc3fd03abcdbbf67a06d876d7eab6ce4399

How researchers see this paper

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In Accounting

1. Bo Becker
2. Martin Jacob
3. Marc A. Jacob
4. Han Xia

In Economics and Econometrics

1. Bo Becker
2. Marc A. Jacob
3. Martin Jacob

Citations in the corpus

• Taxation, Dividends, and Share Repurchases: Taking Evidence Global (2013, unknown): “This effect is consistent with the predictions of Chetty and Saez (2010).”
• Payout Taxes and the Allocation of Investment (2011, background): “A second possibility is that agency problems are a driver of investment in our sample firms in a way consistent with Chetty and Saez (2010): when tax rates go up, pressure to pay out cash is reduced, permitting managers to undertake excessive”