2022-06-30-IMF-Macroeconomic_Effects_of_Dividend_Taxation_with_Investment_Credit_Limits_35页_1009kb

Macroeconomic Effects of Dividend Taxation with Investment Credit Limits

This paper examines the long- and short-term macroeconomic effects of dividend taxation using a general equilibrium model with an occasionally-binding investment credit limit. The model incorporates capital adjustment costs and shows that the impact of dividend tax reforms depends on the credit constraint regime.

In the long run, a permanently lower dividend tax increases capital and welfare when the investment credit limit binds, aligning with the "traditional" view. However, when the constraint is slack, dividend taxes have no real impact (the "new view"). Unexpected temporary tax cuts stimulate investment and output if the economy is initially constrained, but cause contraction if the constraint is slack. The analysis underscores the importance of measuring the firm's initial borrowing capacity before tax reforms.

In the short run, low dividend taxes boost investment and output when firms rely on external financing but lead to contraction if credit is readily available. A permanently lower tax rate reduces business cycle asymmetries by attenuating responses to financial shocks, highlighting the role of dividend taxes in shaping economic dynamics under credit constraints.