The Life Cycle of the Firm with Debt and Capital Income Taxes

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Abstract

This paper analyses the impact of capital income taxes on financial and investment decisions of corporations.Extending Sinn's (1991) nucleus theory of the firm with debt finance, the model determines the optimal sources of finance (debt, newly issued equity or retained earnings), the optimal use of the investment's earnings (dividends, retentions, interest payments or debt redemption), and the optimal capital accumulation throughout the life cycle of the firm.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages29
Volume2006-91
Publication statusPublished - 2006

Publication series

NameCentER Discussion Paper
Volume2006-91

Keywords

  • tax burden
  • capital income taxation
  • firm behaviour

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