IMPACT OF DIFFERENTIAL AND DOUBLE TAXATION ON CORPORATE FINANCIAL POLICIES IN AN INFLATIONARY WORLD

Abstract

This paper uses the capital asset pricing model to show that, in realistic circumstances, double taxation and differential tax rates on personal and capital-gains income affect corporate stock values and financial policies in non-neutral ways. This non-neutrality holds whenever inflation is uncertain and tax-avoidance activity is neither costless nor riskless. The model also allows us to explore how a series of frequently proposed changes in the interplay of corporate and personal taxes would affect corporate dividend payouts and debt usage. Our analysis clarifies that conscientious efforts to integrate corporate and personal tax rates must make supporting changes in the size and character of capital-gains tax preferences built into the tax code.

Citation

Chen, A.H. and Kane, E.J. (2003), "IMPACT OF DIFFERENTIAL AND DOUBLE TAXATION ON CORPORATE FINANCIAL POLICIES IN AN INFLATIONARY WORLD", Research in Finance (Research in Finance, Vol. 20), Emerald Group Publishing Limited, Leeds, pp. 1-17. https://doi.org/10.1016/S0196-3821(03)20001-0