Corporate Taxation and Corporate Governance
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Corporate Taxation and Corporate Governance. / Köthenbürger, Marko; Stimmelmayr, Michael.
Munich, 2009.Research output: Working paper › Research
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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 -
ID: 17523610