Present bias and corporate tax policies

Minwook Kang, Lei Sandy Ye

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)

Abstract

Two major forms of corporate tax policies are dividend and profits taxes. Based on conventional corporate theory, these tax policies distort the firm's investment decisions and decrease firm value. However, this paper shows that under hyperbolically discounted preferences, dividend taxation is capable of boosting firm investment in a value-enhancing way. The hyperbolically discounted present value can be interpreted as reflecting irrational myopic preferences or, as we demonstrate, reduced-form implications of corporate agency issues. Both cases result in an underinvestment problem for the firm, but the firm valuation criteria differ. The optimal taxation issue is discussed under a Cobb–Douglas production function setting.

Original languageEnglish
Pages (from-to)265-290
Number of pages26
JournalJournal of Public Economic Theory
Volume21
Issue number2
DOIs
Publication statusPublished - 2019 Apr
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2019 Wiley Periodicals, Inc.

ASJC Scopus subject areas

  • Finance
  • Sociology and Political Science
  • Economics and Econometrics

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