Corporate Taxation and Corporate Governance

Marko Köthenbürger; Michael Stimmelmayr

Corporate Taxation and Corporate Governance

Marko Köthenbürger, Michael Stimmelmayr

Økonomisk Institut

1483 Downloads (Pure)

Abstract

The effects of corporate taxation on firm behavior have been extensively discussed in the neoclassical model of firm behavior which abstracts from agency problems. As emphasized by the corporate governance literature, corporate investment behavior is however crucially influenced by diverging interests between shareholders and managers. We set up an agency model and analyze the crucial issue in corporate taxation of whether the normal return on investment should be exempted from taxation. The findings suggest that the divergence of interests may be intensified and welfare reduced if the corporate tax system exempts the normal return on investment from taxation. The optimal system may well use the full return on investment as a tax base. Hence, tax systems such as an Allowance for Corporate Equity (ACE) or a Cash-flow tax do not have the familiar efficiency-enhancing effects in the presence of corporate agency problems.

Originalsprog	Engelsk
Udgivelsessted	Munich
Antal sider	32
Status	Udgivet - 2009

Emneord

Det Samfundsvidenskabelige Fakultet

Adgang til dokumentet

PDFForlagets udgivne version, 303 KB

http://www.cesifo-group.de/portal/page/portal/ifoHome/b-publ/b3publwp/_wp_by_number?p_number=2881

Citationsformater

@techreport{e73f9090159411df803f000ea68e967b,

title = "Corporate Taxation and Corporate Governance",

abstract = "The effects of corporate taxation on firm behavior have been extensively discussed in the neoclassical model of firm behavior which abstracts from agency problems. As emphasized by the corporate governance literature, corporate investment behavior is however crucially influenced by diverging interests between shareholders and managers. We set up an agency model and analyze the crucial issue in corporate taxation of whether the normal return on investment should be exempted from taxation. The findings suggest that the divergence of interests may be intensified and welfare reduced if the corporate tax system exempts the normal return on investment from taxation. The optimal system may well use the full return on investment as a tax base. Hence, tax systems such as an Allowance for Corporate Equity (ACE) or a Cash-flow tax do not have the familiar efficiency-enhancing effects in the presence of corporate agency problems.",

keywords = "Faculty of Social Sciences, corporate taxation, corporate governance, allowance for corporate equity, cash flow tax",

author = "Marko K{\"o}thenb{\"u}rger and Michael Stimmelmayr",

note = "JEL classifications: H25, D21",

year = "2009",

language = "English",

type = "WorkingPaper",

}

TY - UNPB

T1 - Corporate Taxation and Corporate Governance

AU - Köthenbürger, Marko

AU - Stimmelmayr, Michael

N1 - JEL classifications: H25, D21

PY - 2009

Y1 - 2009

N2 - The effects of corporate taxation on firm behavior have been extensively discussed in the neoclassical model of firm behavior which abstracts from agency problems. As emphasized by the corporate governance literature, corporate investment behavior is however crucially influenced by diverging interests between shareholders and managers. We set up an agency model and analyze the crucial issue in corporate taxation of whether the normal return on investment should be exempted from taxation. The findings suggest that the divergence of interests may be intensified and welfare reduced if the corporate tax system exempts the normal return on investment from taxation. The optimal system may well use the full return on investment as a tax base. Hence, tax systems such as an Allowance for Corporate Equity (ACE) or a Cash-flow tax do not have the familiar efficiency-enhancing effects in the presence of corporate agency problems.

AB - The effects of corporate taxation on firm behavior have been extensively discussed in the neoclassical model of firm behavior which abstracts from agency problems. As emphasized by the corporate governance literature, corporate investment behavior is however crucially influenced by diverging interests between shareholders and managers. We set up an agency model and analyze the crucial issue in corporate taxation of whether the normal return on investment should be exempted from taxation. The findings suggest that the divergence of interests may be intensified and welfare reduced if the corporate tax system exempts the normal return on investment from taxation. The optimal system may well use the full return on investment as a tax base. Hence, tax systems such as an Allowance for Corporate Equity (ACE) or a Cash-flow tax do not have the familiar efficiency-enhancing effects in the presence of corporate agency problems.

KW - Faculty of Social Sciences

KW - corporate taxation

KW - corporate governance

KW - allowance for corporate equity

KW - cash flow tax

M3 - Working paper

BT - Corporate Taxation and Corporate Governance

CY - Munich

ER -

Corporate Taxation and Corporate Governance

Abstract

Emneord

Adgang til dokumentet

Fingeraftryk

Citationsformater