Tax Policy and Corporate Saving

Authors

Keywords:

tax policy, corporate saving, cost of capital, dividend policy, firm financing, reinvestment

Abstract

The purpose of the paper is to analyze firms decisions about using profits as a financing source. In particular, we are interested in the consequence of changes of tax incentives on that behavior. Following a revision of theoretical aspects of saving behavior of firms, we analyze how tax variables affect internal and/or external financing decisions of firms. From empirical estimations, we conclude that the theory of capitalization of taxes, which states that the cost of capital is the transmission mechanism of tax changes, is not verified during the analyzed period. Indeed, the cost of capital, that affects negatively the reinvestment profit rate, does not appear to be a significant variable of the model. On the other hand, from the traditional theory perspective, in which the dividend policy follows a long run objective, we conclude that profits together with tax incentives on dividend payments, in particular during profit periods, are relevant in financing decisions of firms.

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References

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Published

1997-04-30

How to Cite

Budnevich, C., & Jara, A. (1997). Tax Policy and Corporate Saving. Economic Analysis Review, 12(1), 117–151. Retrieved from https://www.rae-ear.org/index.php/rae/article/view/138

Issue

Vol. 12 No. 1 (1997)

Section

Articles

License

Copyright (c) 1997 Carlos Budnevich, Alejandro Jara

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

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