infonet-economy

This paper analyzes the general equilibrium effects of the new view on dividend taxation. It embeds the nucleus theory of firm development of Sinn (1991) 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 capitalization is shown to depress firm creation and aggregate capital accumulation.