Faculty of Economics and Business Administration Publications Database

Foreign Profits and Domestic Investment

Volume: 69
Number: 3
Pages: 451 - 463
Month: September
ISSN-Print: 0047-2727
Link External Source: Online Version
Year: 1998
Keywords: Corporate tax integration; International taxation; Multinational firm; Investment policy
Abstract: The paper considers investment incentives in corporate tax systems which grant an imputation credit to shareholders when dividends are distributed from domestic sources. An increase in the dividend tax rate which is induced by lowering the shareholders'' imputation rate is shown to potentially depress domesticinvestment. This result is common to `old view'' models which assume that new equity is the marginal source of firms'' finance. In this paper, however, the result is derived in a tax capitalization framework, where retentions are the marginal source of finance and dividend tax rates are usually regarded as neutral.