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Research Papers
Dividends and Taxes (with Roger Gordon)
Work in Progress
Abstract:
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Agency Problems, Investment Policy, and Dividend Taxation (with Benita von Lindeiner)
March 2006
Abstract:
Starting from the empirical evidence presented by Chetty and Saez (2005) on
the 2003 dividend tax cut in the United States, we develop an intertemporal
firm model based on Jensen's free cash-flow hypothesis (1986) to show how
dividend taxation interacts with the agency structure. Contrary to the old and
the new view of dividend taxation, we find that an increase in the dividend
tax rate mitigates investors' incentives to interfere with inefficient
management in the mature firm, thus worsening corporate governance, leading to
a decrease in dividend payments and an increase in investments.
Capital Income Taxation, New Firm Creation, and the Size Distribution of Firms
November 2005
Abstract:
This paper empirically explores the impact of corporate and personal taxes on the size
distribution of business firms. Based on a stylized model of new firm creation and diversity
of an
economy, we hypothesize that much of the tax burden of corporate and dividend taxation
falls
on the creation of new firms and depresses entrepreneurship. Mature firms on the the
other
hand are unaffected by the dividend tax and increase in size by the reduced diversity
of the
economy. Using data on the size distribution of firms, we find strong empirical
support for
the impact of taxes on average firm size. Taxes significantly depress the number
of small sized
firms while bigger firms seem almost unaffected.
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Firm Level Innovation, Knowledge Capital, and a "New" Theory of Investment
October 2005
Abstract:
Transfering the standard macroeconomic investment model to firm level data has produced
very disappointing results. In looking for better models of choppy investment series,
the literature has relied on random depreciation or infrequent readjustments towards
the optimal capital stock. We show that such an approach fails to explain the full pattern of
firm level behavior. As an altenative, we develop a firm level model of investment
based on the individual technological shocks to single firms.
Work in Progress
A Growth Oriented Dual Income Tax (with Christian Keuschnigg)
June 2005
Resubmitted at International Tax and Public Finance
Abstract:
We develop and quantitatively assess a fundamental capital income tax
reform proposal that
combines an allowance for corporate equity with a
dual income tax of the Nordic type. The
reform is financed with an
increase in the value added tax. The paper demonstrates the
neutrality
properties of the reform with respect to investment, firm financial
decisions and
organizational choice. The reform decisively strengthens
savings and domestic investment of
home and foreign based
multinationals. Simulations with a calibrated growth model for
Switzerland indicate that the reform could add between 2 to 3 percent
of GDP in the long-run,
depending on the specific scenario. Given the
slow nature of capital accumulation, it also
imposes considerable costs
in the short-run. To offset the intergenerationally redistributive
effects, we compute a tax smoothing scenario.
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Dividend and Capital Gains Taxation in a Cross-Section of Firms
June 2005
Invited for resubmission at Oxford Economic Papers
Abstract: This paper analyses the general equilibrium effects of the new view on
dividend taxation.
It embeds the nucleus theory of firm development into a framework of
monopolistic
competition with new firm creation. Dividend and capital gains taxes affect the
outcome
in two dimensions: First, a differential treatment of dividends and capital gains
distorts the
allocation of capital across firms. Second, dividend as well as capital gains
taxes are anticipated
at the start-up stage of firms. The capitalisation is shown to depress
firm creation and
aggregate capital accumulation.
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Tax Law Asymmetries and R&D by New and Established Firms
May 2005
Work in Progress
Corporate Income Tax Reform in Switzerland (with Christian Keuschnigg)
Published: Swiss Journal of Economics and Statistics, 2004, 140(4), pp. 483-519.
Abstract:
This paper analyzes the likely economic consequences of a specific
proposal for corporate income tax reform in Switzerland that is based
on the recent ERU (2001)
report. The proposal includes a partial
dividend tax relief, more effective taxation of
capital gains, and a
property tax reduction, all relating to qualified stakes in corporate
firms. Based on an analytical and quantitative analysis, we find that
the reform removes an
important tax barrier against dividend payments,
reduces the cost of equity capital, thereby
reduces debt leverage and
encourages investment in the corporate sector. In stimulating
transitional growth towards higher long-run income levels, the reform
expands tax bases and
thereby becomes considerably less costly in the
long-run. A sensitivity analysis shows that
the quantitative results
are rather robust.
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Screening and Advising by a Venture Capitalist with a Time Constraint
November 2003
Abstract:
This paper proposes an intertemporal model of venture capital
investment
with screening and advising where the venture capitalist's
time endowment is the scarce input
factor. Screening improves the
selection of firms receiving finance, advising allows firms
to develop
a marketable product, both have a variable intensity.
In our setup,
optimal
linear contracts solves the moral hazard problem. Screening however
asks for an
entrepreneur wage and does not allow for upfront payments
which would cause severe adverse
selection. Project characteristics
have implications for screening and advising intensity
and the
distribution of profits. Finally, we develop a formal version of the
"venture capital
cycle" by extending the basic setup to a simple model
of venture capital supply and demand.
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