THE EFFECT OF CORPORATE INCOME TAX INTEGRATION ON THE DEMAND FOR RISKY STOCK (TAXATION, INVESTMENT).

摘要

Under present U.S. law, corporate-source income is subject to a two-tier system of progressive taxation. Income is taxed first when it is earned by the corporation, and again upon its distribution to shareholders as dividends. This system of double-taxation has been criticized because it encourages corporations to favor debt over equity financing, causes a misallocation of capital between the corporate and private sectors, and impairs the competitive position of the U.S. in world markets. In addition, economic studies have suggested that progressive taxes of this nature discourage investment in new and growing firms (i.e., risky investment).; This study employed a laboratory experiment to examine the effect that reducing, or eliminating, the "double tax" on corporate profits would have on individuals' demand for risky stock. Graduate business students participated in a series of investment games which required them to allocate points between a secure and a risky stock under five different tax regimes. Demand for risky stock when there was no tax was compared to demand under the present system of taxation, one system of total integration, and two systems of partial integration. Total integration imposes no tax at the corporate level. Under partial integration, the tax rate imposed on distributed earnings at the corporate level is either zero or substantially less than the rate applicable to earnings retained by the corporation.; The results of the study support the theory that the partial integration tax regimes favor mature firms that are able to increase their dividend payout ratio. No support was found, however, for the theory that progressive taxes decrease risky investment.