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Macroeconomic Effects of Dividend Taxation with Investment Credit Limits
Author:
Matteo Ghilardi
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Roy Zilberman
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Series:
IMF Working Papers
Volume/Issue:
Volume 2022: Issue 127
Language:
English
Publication Date:
01 Jul 2022
DOI:
https://doi.org/10.5089/9798400214721.001
ISBN:
9798400214721
ISSN:
1018-5941
Pages:
35
Keywords:
Dividend Taxation; Occasionally-Binding Borrowing Constraints; Investment; Business Cycles.; borrowing position; tax relief; dividend distribution; dividend tax rate; dividend tax adjustment; tax environment; benchmark system; dividend tax shock; dividend tax cut; tax adjustment; dividend tax system; Dividend tax; Credit; Corporate income tax; Collateral; Stocks
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We analyze the effects of dividend taxation in a general equilibrium business cycle model with an occasionally-binding investment credit limit. Permanent dividend tax reforms distort capital investment decisions in the binding long-run equilibrium, but are neutral otherwise. Temporary unexpected tax cuts stimulate shortterm real activity in the credit-constrained economy, yet produce contractionary macroeconomic outcomes in the slack regime. The occasionally-binding constraint reconciles the `traditional' and `new' views of dividend taxation, and highlights the importance of measuring the firm's initial borrowing position before enacting tax reforms. Finally, permanently lower dividend taxes dampen financial business cycles, and help to explain macroeconomic asymmetries.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund