IMF Working Papers

Macroeconomic Effects of Dividend Taxation with Investment Credit Limits

By Matteo Ghilardi, Roy Zilberman

July 1, 2022

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Matteo Ghilardi, and Roy Zilberman. Macroeconomic Effects of Dividend Taxation with Investment Credit Limits, (USA: International Monetary Fund, 2022) accessed November 12, 2024

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Summary

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.

Subject: Collateral, Corporate income tax, Credit, Dividend tax, Financial institutions, Money, Stocks, Taxes

Keywords: Benchmark system, Borrowing position, Business Cycles., Collateral, Corporate income tax, Credit, Dividend distribution, Dividend tax, Dividend tax adjustment, Dividend tax cut, Dividend tax rate, Dividend tax shock, Dividend tax system, Dividend Taxation, Investment, Occasionally-Binding Borrowing Constraints, Stocks, Tax adjustment, Tax environment, Tax relief

Publication Details

  • Pages:

    35

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2022/127

  • Stock No:

    WPIEA2022127

  • ISBN:

    9798400214721

  • ISSN:

    1018-5941