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on Public Finance |
| By: | J. D. Geanakoplos; H. M. Polemarchakis |
| Date: | 2006–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:321307000000000350&r=pub |
| By: | Lindhe, Tobias (Finansdepartementet); Södersten, Jan (Department of Economics) |
| Abstract: | This paper reconsiders Sinn’s (1991) nucleus theory of the corporation by comparing two different regimes for the equity trap. In the first of these, all cash paid to the shareholders is taxed as dividends, in the second, shareholders are allowed a tax-free return of capital contributed through new issues. A substantial difference is found between the regimes in the seize of initial equity injections, although in both regimes, no dividends are paid until a new long-run equilibrium is reached. Contrary to Sinn, we find that with optimal behavior, the cost of new equity is lower than suggested by conventional formulae. |
| Keywords: | dividend taxation; equity trap; cost of capital; nucleus theory; growth path |
| JEL: | H24 H25 H32 |
| Date: | 2006–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2006_019&r=pub |
| By: | Juan A. Rojas (Universidad Carlos III de Madrid); Carlos Urrutia (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM)) |
| Abstract: | We study the aggregate effects of a social security reform in a large overlapping generations model where markets are incomplete and households face uninsurable idiosyncratic income shocks. We depart from the previous literature by assuming that, because of lack of commitment in the credit market, the borrowing constraint in the unique asset is endogenously determined by the agents' incentives to default on previous debts. We find that a model with exogenous borrowing constraints overestimates the positive effect of reforming social security on the capital stock and the saving rate, compared to our model with endogenous borrowing limit. The reason is that, in the latter, the size of precautionary savings is smaller because after the reform the incentives to default on previous debts are lower and consequently households face more relaxed borrowing limits. Adding retirement accounts to the basic model does not change these conclusions, although the quantitative importance of endogenizing borrowing constraints is reduced. |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:cie:wpaper:0409&r=pub |