Dividend Taxation, Share Repurchases and the Equity Trap

This paper reconsiders the effects of dividend taxation. Particular attention is paid to the form of the “equity trap”, that is, the extent to which cash paid to the shareholders must be taxed as dividends. Our analysis shows that Sinn’s (1991) criticism of the well-known King and Fullerton (1984) methodology for underestimating the cost of new share issues amounts to a misleading comparison across two different regimes for the equity trap. Contrary to Sinn, we find that when dividends are paid following a new issue, as assumed by King-Fullerton, the cost of capital is higher than is the case when no dividends are paid.dividend taxation, share repurchases, equity trap, cost of capital, nucleus theory, growth path

The Equity Trap, the Cost of Capital and the Firm’s Growth Path

This paper reconsiders Sinn’s (1991) nucleus theory of the corporation by comparing two different regimes for the equity trap. In the first of these, all cash paid to the shareholders is taxed as dividends, in the second, shareholders are allowed a tax-free return of capital contributed through new issues. A substantial difference is found between the regimes in the size of initial equity injections, although in both regimes, no dividends are paid until a new long-run equilibrium is reached. Contrary to Sinn, we find that with optimal behavior, the cost of new equity is lower than suggested by conventional formulae.dividend taxation, equity trap, cost of capital, nucleus theory, growth path

Economic Effects of Taxing Closed Corporations under a Dual Income Tax

Under the Nordic dual income tax system, the taxpayer's total tax bill depends not only on his total income but also on the division of that income between capital income and labor income. This has created new room for tax avoidance, especially for active owners of (closed) corporations. For that reason the Nordic governments have enacted special income-splitting rules and this paper examines the economic effects of these rules. The Swedish scheme of taxing closed corporations is shown to be neutral in its impact on the allocation of resources between closely and widely held corporations, and the cost of capital is invariant to the rate at which capital income is imputed to the owner. The Finnish system rather increases the attractiveness of investing in closed corporations, while the Norwegian scheme may or may not cause the cost of capital to be different from that of widely held corporations. Finally, for Swedish tax rules, we show that the owner's labor supply may decrease as a response to a more lenient tax treatment.Dual income taxation; Tax avoidance; Corporate taxation; Cost of capital

The Flow and Pressure Relationships in Different Tubes Commonly Used for Semi-occluded Vocal Tract Exercises

This experimental study investigated the back pressure (pback) versus flow (U) relationship for 10 different tubes commonly used for semi-occluded vocal tract exercises (SOVTE), i.e., 8 straws of different lengths and diameters, a resonance tube and a silicone tube similar to a Lax Vox tube. All tubes were assessed with the free end in air. The resonance tube and silicone tube were further assessed with the free end under water at the depths from 1 to 7 cm in steps of 1 cm. The results showed that relative changes in the diameter of straws affect pback considerably more compared to the same amount of relative change in length. Additionally, once tubes are submerged into water, pback needs to overcome the pressure generated by the water depth before flow can start. Under this condition, only a small increase in pback was observed as the flow was increased. Therefore, the wider tubes submerged into water produced an almost constant pback determined by the water depth, while the thinner straws in air produced relatively large changes to pback as flow was changed. These differences may be taken advantage of when customizing exercises for different users and diagnoses and optimizing the therapy outcome

Why the Norwegian shareholder income tax is neutral

This note extends the work by Sorensen (Int Tax Public Finance 12:777-801, 2005) and others by demonstrating why the Norwegian Shareholder Income Tax may be neutral between the two sources of equity funds, i.e., new share issues and retained earnings, despite the fact that the retention of earnings to finance new investment does not add to the tax benefits. The analysis crucially relies on the assumption that the deduction for the imputed rate of return is capitalized into the market prices of corporate shares. Absent capitalization, the shareholder tax is rather likely to leave the distortions caused by the double taxation of corporate source income unaffected

Why the Norwegian Shareholder Income Tax is Neutral

This note extends the work by Sørensen (2005) and others by demonstrating why the Norwegian Shareholder Income Tax may be neutral between the two sources of equity funds, i.e. new share issues and retained earnings, despite the fact that the retention of earnings to finance new investment does not add to the tax benefits.  The analysis crucially relies on the assumption that the deduction for the imputed rate of return is capitalized into the market prices of corporate shares. Absent capitalization, the shareholder tax is rather likely to leave the distortions caused by the double taxation of corporate source income unaffected

Why the Norwegian Shareholder Income Tax is Neutral

This note extends the work by Sørensen (2005) and others by demonstrating why the Norwegian Shareholder Income Tax may be neutral between the two sources of equity funds, i.e. new share issues and retained earnings, despite the fact that the retention of earnings to finance new investment does not add to the tax benefits.  The analysis crucially relies on the assumption that the deduction for the imputed rate of return is capitalized into the market prices of corporate shares. Absent capitalization, the shareholder tax is rather likely to leave the distortions caused by the double taxation of corporate source income unaffected