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Optimal Corporate Taxation Under Financial Frictions
This paper studies the optimal design of corporate taxes when firms are financially constrained. We identify a corporate taxation principle: taxes should be levied on unconstrained firms, which value resources inside the firm less than constrained firms. Under complete information, this principle fully characterizes the optimal corporate tax policy. Under incomplete information about firms’ future investment opportunities, the government uses firms’ payout decisions to elicit whether a firm is constrained or not, setting taxes accordingly. We show that a constant corporate payout tax, levied on both dividend payments and share repurchases, is optimal in static and dynamic environments. Quantitatively, we find that a revenue-neutral switch to a payout tax would increase the overall value of existing firms and new entrants by 7%.
Date:
14 October 2020, 16:00
Venue:
By Zoom
Speaker:
Benjamin Hebért (Stanford Graduate School of Business)
Organising department:
Saïd Business School
Organisers:
Dr Martin Simmler (Oxford University Centre for Business Taxation),
Dr Irem Guceri (Oxford University Centre for Business Taxation)
Organiser contact email address:
cbt@sbs.ox.ac.uk
Part of:
Oxford University Centre for Business Taxation Research Seminars
Booking required?:
Required
Booking email:
CBTEvents@sbs.ox.ac.uk
Audience:
Members of the University only
Editor:
Alison Meeson
